In market share wars for retirement plan dollars, big and small brands alike have much to learn

July 8, 2011 — 2:23 PM UTC by Brooke Southall

1 Comment

The best-known 401(k) players in the marketplace such as Fidelity Investments, Vanguard Group and The Charles Schwab Corp. are not rated highest for service and support by plan sponsors, according to a new study.

In fact, none of them even made the top ten.

Those rated highest in these critical areas include little-known firms like Ascensus, Milliman, Affiliated Computer Services, Mercer and Diversified Investment Advisors, according to Cogent Research’s Retirement Planscape 2011 study that was released last week. The study is based upon a representative survey of 1,600 defined contribution plan sponsors across all plan sizes and industries.

Lack of brand recognition can prevent a provider from making it to the table, yet Cogent of Cambridge, Mass. found best-in-class plan sponsor service and support serves as the strongest differentiator – maximizing the chance that a plan provider will be selected.

Brand equity

“Being well-known and liked – what we like to call brand equity – can only get you so far,” says Christy White, Cogent research principal, in a release. “To really stand out from the competition in the minds of plan sponsors, providers need to excel at the things that matter most to them – service and support. Problem is, no one plan provider has managed to be highly associated with both of these critical attributes.”

In an interview, White made it clear that the big guns like Vanguard, Schwab and Fidelity did not rate poorly but that lesser marks on service and support may make it difficult for these companies to gain market share.

“It’s an opportunity for some of the smaller players to build up their brand and it’s a challenge for the larger brands to say: 'We’re great at different niche services,’” she says. See: Cerulli report: Specialized RIAs likely to win middle-market 401(k) plan battle.

Ryan Alfred, co-principal of La Jolla, Calif.-based Brightscope, a 401(k) tracker, says that smaller providers have always been associated with service and larger ones with the promise implicit in a strong brand name.

“The 'brand equity’ firms work with large companies and the 'service’ firms work with small companies. It seems that how firms win business depends on the market segment. I hear all the time from jumbo sponsors that the only providers they feel safe working with are Fido, Vanguard, and Hewitt. No amount of service will win that business for a firm like Paychex, which focuses on micro and small plans.”

Ask the advisor

Craig Watanabe, Penniall & Associates, Inc., is an RIA with approximately $600 million in 401k assets under management and $400 million in non-retirement assets. Its largest plan is $65 million but the bulk of its accounts are $5 million to $25 million in size.

He agrees with some of Cogent’s findings but questions whether the survey was done in a way that gives the best feedback.

“I agree with the survey’s conclusion that service and support are of paramount importance and I am not surprised that Schwab, Fidelity and Vanguard are not in the top 10. However, I have questions with the way the survey was conducted.”

With regard to service, Watanabe believes it would make more sense to poll the plan advisor rather than the plan sponsor because it is typically the plan advisor who interacts more with the service providers.

“Even if the plan sponsor answers the question, they are probably basing their response in large part on the service provided by the plan advisor. An analogy would be asking investors to rate the service from Merrill Lynch, Morgan Stanley, UBS and LPL. If they want to differentiate their services it will need to be in the eyes of the plan advisor and the not the plan sponsor.”

Fine, thank you

Despite the Cogent study, some major players feel they’re doing just fine in the service arena.

In a recent internal study by Fidelity (the company did not specify a date) the results showed that 95% of its defined contribution clients were satisfied with the service the company is providing, according to its spokesman, Steve Austin.

Schwab Retirement Plan Services was rated by Boston Research Group “at or near the top” in the 2010 Plan Sponsor Defined Contribution Plan Survey for its website, record keeping, relationship management, ERISA services, investments and value for cost, according to the company. Schwab declined to say how near the top it was. The firm is making some big strategic moves in the 401(k) business currently – lowering costs and offering more advice. See: What to make of yesterday’s Wall Street Journal report on Schwab’s 401(k) 'bet’.

Vanguard Group of Malvern, Pa. declined to comment for this article.

The top ten plan providers that have distinguished their brands on service and support, according to Cogent, are:

  1. Ascensus
  2. Milliman
  3. Affiliated Computer Services
  4. Mercer
  5. Diversified Investment Advisors
  6. Great-West Retirement Services
  7. Paychex
  8. The Standard
  9. Hewitt
  10. ADP Retirement Services

For more on Cogent’s views on the 401(k) business, see: What Cogent’s new study says about where RIAs stand in the 401(k) business.

Mentioned in this article:

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Frederick Van Den Abbeel said:

July 8, 2011 — 4:32 PM UTC

Bruner et al. v. VLP Corporate Services, LLC , filed June 26 in U.S. District Court for the District of Kansas. Article in RE: small 401(k) plan lawsuit targets providers for excessive fees and inadequate disclosure. Charles Schwab was also named in the suit.

Brooke, might be worth exploring further the outcome (I believe case is still pending) as a tie-in to this article? The suit is unique because a custodian was also included.

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