Trends and Issues: 401(k) Business: Attractive But Tough

Forty-one million Americans have $1.7 trillion in 401(k) plans, according to data from the Profit Sharing/401(k) Council of America and the Department of Labor. So are retirement plans a ripe and ready market for brokers? Not exactly. Selling and overseeing 401(k)s is tough, says Ted Benna, creator of the first 401(k) plan and president of the 401(k) Association. Some [brokers] are very successful

Forty-one million Americans have $1.7 trillion in 401(k) plans, according to data from the Profit Sharing/401(k) Council of America and the Department of Labor.

So are retirement plans a ripe and ready market for brokers? Not exactly.

“Selling and overseeing 401(k)s is tough,” says Ted Benna, creator of the first 401(k) plan and president of the 401(k) Association. “Some [brokers] are very successful and make a considerable amount of money. Others have limited success.”

Here are common concerns and things to consider before getting involved:

  • The workload — Some reps avoid 401(k)s because they perceive them as too much work for too little pay. “They are phenomenally labor-intensive,” says Michael Kresh, a Royal Alliance rep in Hauppauge, N.Y. “You get tons and tons of follow-up calls for investment-related stuff.”

    Rob Olcott, who heads The Olcott Consulting Group at Prudential Securities in Tyson's Corner, Va., says the market takes determination. “If someone really wants to build 401(k) business or make it a significant part of their book, they have to get involved, do their homework, research and make a commitment.”

  • The lead time — Selling plans can take years since employers don't start plans or switch providers blithely. The lengthy cycle means it's not the right kind of business for some. A 17-year veteran, Olcott has seen a lot of reps, particularly rookies, wrongly decide to focus on 401(k)s. “They don't have the skill set,” he says. “They don't understand it's typically a long lead-time business.”

  • The participants — The average 401(k) participant is not typically a sophisticated investor. So that means brokers must also be educators — and like that kind of work.

    Dan Piazza, partner in Creative Benefit Consulting, a Financial Network Investment Corp. firm in Morton Grove, Ill., has several 401(k) and pension plan clients. He sees employees twice a year, which cuts down on calls, he says.

  • The administration — Details, details, details. Reps say servicing 401(k) plans takes vigilance and patience. “The biggest problems involve all the administrative and compliance stuff rather than investing,” Benna says. “The [automated online] investment advisories don't provide any help with these areas.”

All of the above aside, the 401(k) market can be rewarding for brokers who focus on it.

“If you really deliver the services [a plan sponsor] needs, it tends to be a long-lasting relationship,” Olcott says. He also likes educating employees. “It's gratifying to see these people you are working with say, ‘Thanks. We appreciate your advice. You helped us make money.’”

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