Friday, June 16, 2006

401(k) Microplans

There are and should be lots of dissatisfied 401(k) plan sponsors and participants in the microplan market. (<$1M assets) Why? Because the economics don’t work without excessive fee generation through either investment revenue sharing arrangements, the margins imbedded in proprietary investment products or high contract cover charges as explained in this article from Institutional Investor. If large Banks and Insurance Companies can get comfortable with the margins …plan investors have little opportunity for investment success.
This is an inefficient market from a buyers perspective, and the sellers have informational advantages that most plans sponsors don’t. The mutual fund companies will increasingly put pressure on the insurance companies Relatively new competitors in this space, virtual or on line providers, are also beginning to have an impact as well. Unfortunately as they succeed, they are taken out by ..you guessed it …Banks and Insurance companies.

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