Monday, December 29, 2008

'Unbundled' 401(k) providers to expand offerings

Small companies like having choices from many sources


By Lisa Shidler November 9, 2008

... Chicago's Spectrem Group found that 54% of companies that featured unbundled plans intended to add investment options, compared with 35% of full-service purchasers.

Most companies hire a single financial provider to offer such "bundled" 401(k) services as investment products, administration and employee education. About 12%, or 63,000, plans are unbundled — that is, they offer services from a variety of companies, according to Spectrem. ...

Companies most likely to use an unbundled plan structure are those with plans whose assets are below $200 million, the survey found. For example, 61% of plans with less than $5 million in assets offered unbundled platforms, compared with 2% of plans with $200 million or more in assets, according to the survey.


Sixty-one percent of employers that used an unbundled structure involved an outside consultant in their decision making, compared with 58% of those that used a bundled format. ...

"There are consultants who are particularly focused on the investment side of things," said Gerald O'Connor, a director at Spectrem. "They're not as much involved in setting up the record keeping.

Often, advisers who provide unbundled services to employers bring in TPAs and other firms to provide these additional services, Mr. O'Connor said.

There are benefits to both bundled and unbundled plan structures, said Geoff Mettler, an adviser and vice president of retirement services with Jenkins Insurance Group, a Concord, Calif., firm that manages about $300 million in assets. ...

"I think the appeal of the bundled is, it's a lot simpler," Mr. Mettler said. "It's cheaper and a turnkey solution.

"But when things go a bit wrong, ... [they] don't have the resources to fix the problem," he said. "There's a lack of accountability on the bundled side. When it's unbundled, everyone's accountable."

Also, employers tend to get more attention from each service provider when they choose an unbundled solution, Mr. Mettler added.

Using a bundled solution is typically easier for employers and advisers, said Terrence Morgan, an adviser and president of Oklahoma City-based OK401k Inc., which advises companies on their 401(k) plans.

"It makes more sense to the adviser to have everything under one roof," he said. ...

Still, Mr. Morgan said, there are times when savvy employers want specific fund choices and pick an unbundled solution. Employers often don't have as much choice over the plan's investment options in a bundled plan, said Mr. Morgan, ...

"It's not to say you don't do as good of a job if you use a bundled vendor; you just don't have as much freedom," he added.

But advisers should realize that if they negotiate with vendors, they can obtain more options in a bundled solution, and typically, it's more cost-effective for smaller employers, said Barbara Delaney, an adviser with StoneStreet Equity Inc., a Pearl River, N.Y., firm that manages about $2 billion in assets.

Many providers of bundled plans are willing to offer customized services to employers, she added. ...

E-mail Lisa Shidler at

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