Fees Are Now Top Reason Retirement Plan Sponsors Switch Providers
CHICAGO, IL, August 25, 2008 -- Fees have become the No. 1 reason retirement plan sponsors switch providers.
Nearly one-third (30%) of plan sponsors cited cost/fees as the primary factor precipitating a change in plan providers. This surpassed poor service (26%) and investment issues (12%), and represents the first time that fees have been the No. 1 reason for changing providers, according to a new report from Spectrem Group, "DC Market Needs," released today.
In 2005, cost/fees finished third (18%) to both poor service (45%) and investment issues (26%). Fees also came in third in 1999 and 2002.
"For the first time since Spectrem began tracking this data in 1989, plan sponsors are switching providers because of the fees they pay -- not the service they receive. This represents a major change, as until now poor service had always been the No. 1 reason sponsors switched providers. The newfound focus on fees coincides with increased attention paid to fees and fee disclosure by the media and regulators over the past couple of years. Of course, sponsors' greater scrutiny of fees puts pressure on providers to reduce them and, consequently, may impact margins in an already competitive market segment," said George H. Walper, Jr., President of Spectrem Group and co-author with Spectrem Managing Director Catherine S. McBreen of the new book "Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families" (Portfolio, January 2008).
Indeed, plan sponsors appear to have grown more knowledgeable about the fees they pay. When asked, 18% said they pay less than 1% of plan assets and 21% cited fees in excess of 2% of assets. These responses are far more realistic than plan sponsors provided in 2005, when a full 54% said they paid less than 1% of assets and just 4% cited more than 2% of assets.
The Spectrem report "DC Market Needs" is based on the online polling of individuals responsible for the selection and evaluation of retirement plan providers at 1,052 companies with defined contribution plans. Polling was conducted in May and June of 2008. The data have a margin of error of plus or minus 3 percentage points.
About Spectrem Group
Spectrem Group is a strategic consulting firm specializing in the affluent and retirement markets. It integrates proprietary research with expertise in building business, marketing and M&A strategies. Spectrem professionals have held senior management positions at leading global companies. Through a collaborative process, they create and implement practical and profitable strategies that fit the cultures of client firms.
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