Full-Court Press Into Small Plan Market

By Cyril Tuohy

InsuranceNewsNet

The conventional wisdom is that there's little money to be made in the small plan 401(k) market, and even less profit to be made in the micro plan retirement market. Economies of scale don't work as well there as with larger plans, the theory goes.

Don't tell that to the honchos at The Guardian. They're more than happy to press ahead with a business plan that digs into the small side of the $4.2 trillion U.S. retirement market.

The small group market, plans with less than $5 million in assets, makes up 95 percent of all qualified plans and represents more than $750 billion in plan assets, according to 2012 data from Cerulli Associates.

For Guardian and its army of salaried wholesalers, the answer to increasing market share of that $750 billion pie lies in educating financial advisors, nudging them really, into selling more retirement plans of all stripes.

"It's about really helping them understand how they can do a better job around helping plan sponsors, Jason Frain, vice president of 401(k) product development and management, said in an interview with InsuranceNewsNet.

Steve Irwin, vice president of life/health with A.M. Best Co., in an e-mail to InsuranceNewsNet, said fee-based services are appealing to insurers as a way to reduce interest-rate and market sensitivities in an environment of low interest rates.

"The small plan market is showing good growth trends, so Guardian has noted in recent news releases that is has been adding to its sales team that is focused in the small plan market. It also announced new fiduciary support services to plan sponsors and enhancements to its fund lineup," Irwin said.

Guardian's self-styled "G2 Summit: Gain and Grow," a series of Guardian-sponsored meetings for advisors with retirement experts representing some of the nation's largest mutual funds, is scheduled to wrap up next month.

Questions from financial advisors have run the gamut, from inquiries about the scope of an advisor's fiduciary duties to the investment options facing plan sponsors, to the fees and commissions paid to advisors, to the regulatory environment governing the setup of benefit plans, Frain said.

Steve Davis, recently hired as national sales manager for Guardian Retirement Solutions, said many financial professionals "make the mistake of ignoring the micro and small plan market, or feel they have to go it alone."

Small business 401(k) plans offer a "unique platform" for advisors to boost revenue, diversify their client base and establish "deeper and more rewarding relationships with business owners, company executives and plan participants," Davis said.

Advisors are never alone, Frain said. Advisors need to know big companies have resources to help them penetrate further into the small plan market, even if the early going remains a tough slog demanding a lot of work with little initial return.

Advisors, Frain also said, need to get into a discussion and educate plan sponsors and company owners about the importance of getting in front of plan participants about contributing to a retirement program.

Once discussions are under way, big life insurance companies like Guardian, MassMutual Financial, ING and John Hancock, or mutual fund companies such as T. Rowe Price, Franklin Templeton and Vanguard, can work with advisers to develop retirement plans and illustrate what the plans will look like, whether it is a variant of the 401(k), an Individual Retirement Account, a Simplified Employee Pension plan, or a profit-sharing arrangement.

But why increase the push into the small retirement plan segment now? With thousands of baby boomers retiring every day over the next few years, pundits from Congress to the mainstream press have been talking about retirement plans and how unprepared many Americans are for it, Frain said.

The Great Recession hammered home the importance of a financial cushion and has given people a sense of what life might be like when the nest egg evaporates. Layoffs, too, have encouraged former managers to strike out and start new businesses.

"Focusing on the micro market is where 95 percent of the plans are. It's just the right thing to do," Frain said.

It's also good for shareholders. The 401(k) business generally provides returns on equity in the mid-teens, Irwin said, although he noted that the returns have been "more muted" in recent years due to efforts of regulators.

Guardian Life doesn't break out separate sales numbers for income generated from its retirement plans, but Frain said that Guardian services about 2,500 401(k) plans and that Guardian's sales in that market grew by 50 percent last year over 2011.

"That's the market where we want to be seen as the go-to provider, because a lot of other providers are focused on those larger plans," Frain said. "We think we can have a meaningful impact on our clients' lives in the under $5 million" plan-asset category.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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