A 401(k) plan just changed advisors. Is the incumbent service provider toast as well?
Advisors active in 401(k) acquire about three plans per year on average, an annual sales number that rises to nearly seven plans for the typical Heavy advisor (one who derives at least 60% of total practice revenue from the sale and servicing of 401(k) plans). New research shows that advisors swap out the incumbent primary service provider within the first 12 months of acquiring a plan about one-third of the time. Provider turnover is highest among plans with $3 million to $10 million in assets, lower at either end of the size spectrum tested.
Plans Sold and Provider Turnover
Base: have at least one plan
Thinking of a sale as any account you newly acquired as a paid advisor, in the past three years, how many standard or safe harbor 401(k) plans did you sell with assets of …
How many of these plans changed primary provider within 12 months of your taking over the advisory relationship?
||# Plans Sold
||# Plans Turning Over
||% Turning Over
|Total average # 401(k) plans
|Less than $1M
|$1M to < $3M
|$3M to < $10M
|$10M to < $25M
|$25M or more
From separate plan sponsor research we know that the propensity to change advisors is also highest in that same $3 million to $10 million range. It seems that plan sponsors approaching the $5 million threshold often take a harder look at the services (and pricing) they receive from both their advisor (who may be more of a generalist without specific 401(k) expertise) and their primary service provider.
Certainly a plan that has grown up, say from $1 million to $5 million, has become much more attractive to advisors and to many providers; both parties are now ready to offer highly competitive service arrangements, products and pricing.
About the research
These findings are based on telephone interviews with a representative crosssection of 591 advisors deriving income from 401(k) plans conducted in waves between January and November, 2012.
About Brightwork Partners, LLC
Delivering both multi-client and custom studies, Brightwork is a research-based consulting firm with a special focus on investment, product and distribution issues in the retirement services industry; www.brightworkpartners.com.
For more information: Merl W. Baker or Ronald L. Bush, 203.487.2000; email@example.com, firstname.lastname@example.org