SMALL-BUSINESS OWNERS, financial-services heavyweights want you — and especially your retirement plan.
Among the many consequences of the recession for financial-services firms, depleted retirement assets rank as one of the more serious. In 2008, total U.S. retirement assets, including both defined-contribution and defined-benefit plans, sank 24% to $7.9 trillion from $10.3 trillion in 2007, according to Chicago retirement consulting firm Spectrem Group. What’s more, those same firms have continued to suffer as clients either cut, reduce or otherwise alter their retirement benefits. Fidelity Investments, for example, recently lost large contracts to run 401(k) retirement plans for Ford Motor (F), Apple (AAPL) and United Technologies (UTX), which leveled a collective loss of nearly $30 billion, according to federal filings.
So, while retirement assets have rebounded largely — in 2009 they rose to $9.3 trillion — the economic realities for financial-services firms are still shifting. Now, to make up for lost business, firms like Fidelity, ING and TD Ameritrade (AMTD) are targeting new products to the small-business sector. In January, for example, ING Direct’s Seattle-based ShareBuilder 401k launched a new program that automatically trims a small company’s administrative costs and participant fees as the plan attains certain savings milestones: $1 million, $2 million and $5 million in assets. Fidelity in April launched a new bundled services 401(k) program targeted at registered investment advisors who often serve as the middleman between small-business owners and plan providers. To improve its meager offerings for small businesses, discount brokerage powerhouse TD Ameritrade in 2008 acquired its 401(k) processing infrastructure from Fiserv (FISV), a financial processing and electronic payment firm in Brookfield, Wis.
Essentially, “as business is leaving, some of the bigger providers are looking for a new home,” says Mike Alfred, the CEO of BrightScope, an independent financial intelligence firm in San Diego. Small firms are a good target because they didn’t cut and run out on their retirement plans as much as large firms did during the downturn, says David Wray, the president of the Profit Sharing/401k Council of America (PSCA). “The small firm 401(k) market has been strong even through this difficult period,” he says.
When the downturn set in, many employers quickly responded by cutting back on everything from office supplies and business travel to health-care plans and 401(k) matching. Although small employers largely did the same, on average, they left their retirement plans intact. From the beginning of 2008 through 2009, 16.1% of the largest companies (200 employees and more) suspended matching retirement contributions. By contrast, just 11.3% companies with 50 to 199 employees, and 6.1% of firms with fewer than 50 employees, suspended their matching contributions, according to a recent survey from the PSCA.
What’s more, only about a third of small businesses with fewer than 25 employees offer retirement plans to employees, according to the General Accounting Office’s reading of data from the Census Bureau’s Current Population Survey.
But that lack of participation too presents an opportunity for providers. Small businesses largely represent an untapped pool of clients, says Bert P. Kingsley, a Hartford, Conn.-based principal at Mercer, a health and benefits consultancy. “The Fidelitys of the world have always operated in the large end of the market, but that’s relatively exclusive,” he says. “To grow, they’re understandably looking to smaller-end customers.”