Small-business 401(k) plans growing opportunity for advisers INVESTMENT NEWS By Lisa Shidler CHICAGO - For financial advisers, the small-401(k) market is where the action is. "There's growth potential there, and advisers can ride that wave a little bit," said Mr. Modestino, who is working on a report that looks closely at the 401(k) market. "There are definitely more of those types of businesses around for prospecting than there are for larger plans." That may be especially true for advisers who don't accept commissions. Indeed, the recent trading scandal involving dozens of mutual fund companies has given rise to more demand for fee-only advisers in the small-plan market, said Rick Meigs, president of 401khelpcenter.com LLC of Portland, Ore. "These fee-only independent advisers with no ax to grind are growing rapidly and are in demand," he said. But helping small companies set up and administer 401(k) plans is vastly different from doing so for large companies. "You're not talking about a lot of assets, and you're not talking about companies that can step up and write $5,000 to $10,000 checks," Mr. Meigs said. "Companies trying to grow market [share] are struggling to figure out a model that really works." More hand-holding Also, small-business owners rarely have the time it takes to understand all the options available to them when it comes to setting up a retirement plan. As a result, advisers working with small-business owners should be prepared to do a little more hand-holding. "One of the things we're seeing is a little bit more confusion on the part of small-business owners to make a decision," said Chad W. Parks, president and chief executive of Decimal Inc. in San Francisco. "Choice is good, but it can also cause inaction. Small-business owners are very much like their employee base. They're thinking about the plan as a person who will be the end user." In rare cases, it's taken some small-business clients up to 1,000 days to make a decision about whether to open a 401(k) plan, some advisers say. More often, however, that decision is reached within 50 days. Too many choices Small-business owners indeed are easily overwhelmed by the choices available to them, agrees Alain Michnick, director of retirement services at Ryan Beck & Co. Inc. of Florham Park, N.J., which oversees $460 million in 401(k) plan assets. "I think you have to try [to] be very concise with recommendations," he said. "Basically, there can be so many things you can bring to the table, and it gets very confusing." Predictably, some larger financial services companies also are going after the small-401(k) market. The Hartford (Conn.) Financial Services Group Inc., for example, is targeting businesses with 10 to 100 workers. "That's our sweet spot, from a sales perspective," said Marty Swanson, chief marketing officer for retirement plans at The Hartford, which had $11 billion in 401(k) plan assets at yearend 2005. "We've been growing at 20% each year for the last three years. It's a growing market." That's because only about 40% of the nation's 5 million small businesses have 401(k) plans in place, Mr. Swanson said. Getting that business, he said, often comes down to whether an adviser is successful gaining the trust and confidence of the owner. "The broker has a relationship with the owner, and [the owner has to] trust the broker," he said. Lisa Shidler can be reached at lshidler@crain.com. |
