The Next Wave *LINK*
Posted By: karibkween In Response To: Health Care and Radical Monopoly *NM* *LINK* (three_sixty)
Date: Thursday, 7 April 2011, at 10:22 p.m.
In Response To: Health Care and Radical Monopoly *NM* *LINK* (three_sixty)
On the prowl to replace lost income, banks are seeking a bigger slice of the growing, $2.9 trillion 401k pie.
Bank of America (BAC, news), JPMorgan Chase (JPM, news) and Wells Fargo (WFC, news) are adding staff, creating easier-to-use technology and competing on fees in an effort to win a bigger share of the trillions of dollars in 401k savings plans.
JPMorgan almost doubled its sales force dedicated to selling retirement-plan services to employers in 2010, says Michael Falcon, whose job as head of retirement in the U.S. and Canada for the bank's asset management unit was created in January. "It's one of the top priorities" at JPMorgan, he says.
Americans held $2.9 trillion in 401k plans as of September, and the total may reach $4 trillion by 2015, according to Cerulli Associates, a Boston research firm.
Increased competition from banks may lead to lower costs and more choices for employers and savers, says Laura Pavlenko Lutton, an editorial director in the mutual fund research group at Morningstar.
And it may mean less revenue for the top three 401k administrators: Fidelity, Aon Hewitt and Vanguard, which together had 43% of the market at the end of 2009, compared with a combined share of less than 10% for Bank of America, JPMorgan and Wells Fargo, according to Cerulli.
The most expensive plan administrators charge fees equal to more than 6% of the amount of money in employee accounts annually, while the lowest-cost providers charge less than 0.1%, says Ryan Alfred, co-founder of BrightScope, a San Diego company that rates 401k plans.
Employers seek cost savings
In most cases, the money comes out of employees' assets, but some companies shoulder part or all of the fees. Bank of America, JPMorgan and Wells Fargo would not disclose the average fees for plans they serve. Michael Kozemchak, the managing director of Institutional Investment Consulting, says the employers he works with that sought bids on their 401k's in the last year were able to realize average cost savings of 31%.
Hallmark Cards switched its plan to JPMorgan last year to reduce costs and improve services for employees, says Tresia Franklin, the head of benefits and compensation for the Kansas City, Mo., company.
JPMorgan had the best pricing for the services Hallmark wanted, she says. Franklin declined to disclose how much Hallmark pays the bank in fees or to quantify its savings. The plan had been administered by Aon Hewitt, the consulting and human-resources outsourcing company, which declined to comment on the change or its fees.
New ways to make money
Banks are searching for new ways to make money as losses on mortgages and increased regulation of fees have curbed their revenue sources, says Terry Moore, the managing director of the North America banking practice for consulting company Accenture.
"We've been upping the ante on retirement," says Andy Sieg, the head of retirement services for Bank of America Merrill Lynch. The bank has beefed up its retirement services staff with executives brought over from Fidelity and other rivals, including Rich Linton, who had overseen Fidelity's adviser retirement group and now has a similar role with Bank of America.
Wells Fargo has added features that allow employers to more closely track their employees' saving and investing, says Laurie Nordquist, a director of institutional retirement and trust for the bank. In 2010, Wells Fargo added $6.2 billion to the defined-contribution assets it administers. Bank of America gathered an additional $14.5 billion and JPMorgan Chase added $10 billion in 2010.
The total market grew by about $125 billion in the first nine months of last year.
Not all banks are rushing into the business. Citigroup (C, news) doesn't have a 401k administration operation.
Fidelity, which dominates the industry, is "very comfortable" with the increased competition, says James MacDonald, the head of workplace investing for the mutual-fund company.
Fidelity administered 27% of all assets in 401k plans as of 2009, or three times more than Aon Hewitt, its closest competitor. Fidelity's client retention rate is 97%, and it runs the plans of General Electric (GE, news) and International Business Machines (IBM, news), among others, according to BrightScope.
Bank of America's Sieg says his company will be able to claim market share by winning the plans of corporate customers of its banking business.
"We have access to more client companies than any other firm in the marketplace," he says. "We're just beginning to scratch the surface of that opportunity."
This article was reported by Margaret Collins and Elizabeth Ody for Bloomberg Businessweek.
Big banks go after 401k trillions
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