Banks Set Sights On Small Business Retirement Plans

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Many banks see a huge opportunity in selling retirement plans to small to midsized businesses, experts say.

“If you look at the sheer number of businesses with under 500 employees, the vast majority dont have 401(k) plans, so the opportunity to develop the market is enormous,” says Eric Schneeman, chairman and founder of Plan Analytics Inc., a benefits consulting firm in Minneapolis.

Banks are already effective in prospecting their current client base in selling retirement programs to small businesses and their employees, notes Schneeman. “But theres still an enormous opportunity for them to do much more cross-selling.”

Ken Reynolds, managing director of the American Bankers Insurance Association, Washington, says a new study by ABIA found that 4.5% of his groups member banks introduced group benefit products last year. Many of these consisted of retirement programs for business clients.

Another sign of growing interest by banks in selling retirement plans is reflected in the recent pattern of agency acquisitions by ABIA members, notes Reynolds.

“More banks are acquiring agencies that have commercial coverages,” says Reynolds. “It used to be mostly smaller banks were buying agencies. Now bigger banks like Wachovia and Wells Fargo have begun to buy large agencies with extensive commercial coverages. It reflects that the larger banks interest in selling retirement plans and other types of benefits is growing.”

Bruce Ferris, vice president of investment services for Hartford Financial Services Group Inc., Simsbury, Conn., says banks are a big reason why 401(k) plans are his companys fastest-growing line of business. Its sales of these products increased 75% this year as of August over the same period last year in number of cases sold, Ferris says.

“Businesses look to banks for their retirement plans,” he observes.

Ferris says banks like strong wholesaling and sales support from insurance carriers, and Hartford tries to be strong in that area, fielding more than 180 wholesalers and over 40 retirement plan specialists to lend support to banks, furnishing services such as plan startup, employee enrollment and post-sale servicing.

Many banks look for proprietary retirement products from carriers like Hartford, Ferris notes, just as they do with mutual funds and annuities.

Offering such products for the bank to sell under its own name “allows us to be a better partner,” he adds.

Hartford offers over 70 funds, from which a banks business client can choose up to 44 as part of its 401(k) plan, Ferris says.

Nationwide Financial Institution Distributors, a unit of Nationwide Financial Services Inc., Columbus, Ohio, focuses on providing training and support to bank representatives to help them sell the retirement products, notes Matt Riebel, president of Nationwides bank distribution arm.

“Were often helping the bank investment rep identify opportunities,” Riebel notes. “In a lot of cases, they dont realize they have the opportunity.”

In addition to finding prospects within their institutions current clientele, Nationwide will also alert the bank rep to small business owners in their area who are candidates for pension plans, including those with existing 401(k) plans.

Nationwide also offers training for banks commercial lenders and trust officers who have a lot of contact with small business owners, Riebel says.

“We educate them about opportunities in investment areas that we can bring to (the) table to help them retain clients,” he explains. “Its a successful way to tap into that market.”

Nationwide can provide banks with plan administration services on a national or local basis, Riebel adds. And it will even send experienced retirement plan salespeople to make joint calls with bank reps on business accounts.

The company also offers banks a training program aimed at small business owners that bankers can use to show employers how to meet their due diligence obligations as plan fiduciaries, Riebel notes.

Thanks largely to its bank programs, Nationwides retirement plan sales overall through August were up 155% over last year, he adds.

“One of the leading growth areas for retirement plans has been in bank distribution,” Riebel says. “In fact, it is the leading growth area in our business this year. And we think we are just barely scratching the surface of the retirement plan business that can be done through banks.”

Jay Kiedrowski, head of institutional trust services for Wells Fargo Corp., San Francisco, says that with over one million participants in 3,500 plans, his company is the 15th largest 401(k) provider in the U.S. For Wells Fargo, sales of retirement plans have been growing at about 15% a year, Kiedrowski says.

For its main target of midsized firms–100 to 1,000 employees–Wells Fargo fields a sales force of 35 reps. They work with other Wells Fargo businesses, including its insurance broker, Acordia Inc., in Indianapolis, as well as lenders and equipment finance specialists to find leads and identify target businesses for its 401(k) plans.

Wells Fargo can service 401(k) plans from 62 local offices in 28 states, Kiedrowski says. “We are one of the few that can offer that kind of local service,” he says.

Wells Fargo does not focus on retirement plans for smaller businesses, Kiedrowski says, because of slim profit margins in this market.

If a plan has under $1 million in assets, however, Wells Fargos trust division will refer it to its brokerage group in Minneapolis, which has a plan suitable for microbusinesses.

The recent slump in stock market equity values slowed down retirement plan sales, and Wells Fargo is seeing a third to a half of the prospects it had before the drop. But Kiedrowski sees that less as a loss of interest by businesses in 401(k)s so much as their preoccupation with other financial issues stemming from the recession.

Although they represent competition for independent agents, and brokers and dealers specializing in retirement plans, banks can represent an opportunity for them too, experts say.

Some, such as Wachovia Corp., Charlotte, N.C., are looking to partner with financial intermediaries to boost sales of retirement products for small businesses.

Wachovia sells plans for companies with anywhere from five to 10,000 employees, says Joe Ready, senior vice president and director of Wachovia Retirement Services.

The company tries to be a full-service provider, offering administration services as well as a selection of products from its own Evergreen mutual fund family as well as some third-party providers.

Wachovia has almost $48 billion in assets under management for almost 3,000 plans, including almost 1,900 defined-contribution plans and 668 defined-benefit plans.

It sold more than 166 defined-contribution plans this year alone, as of the end of August, says Ready.

Sales of retirement plans overall are up 20% over year-ago levels, Ready notes.

Wachovia sells the products not only through its own network of banks but also through independent agents and other intermediaries, notes Ready.

To support those intermediaries, Wachovia has a force of 14 dedicated wholesalers selling through that channel, generating $500 million in asset sales.

“We want to make sure were converting the sales efforts of intermediaries who focus on retirement plan business,” says Ready. “We support their sales efforts with a dedicated Web site that gives them client presentations, investment analyticals, ghost articles with data to present to clients, underlying collateral and industry trend information,” he notes.

Despite the success of big players such as Wachovia and Wells Fargo, sales of retirement plans for business have entered a slow period, experts note. This is due not just to the current recession but also to pending legislation, such as possible restrictions on company stock in retirement plans, they note. But they see this as only a temporary lull in what could be a booming business.

“We saw business pick up in late spring, says Schneeman of Plan Analytics, “and now we see more good opportunities. Due to the small penetration of this market, there is still plenty of interest.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 14, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.