With Merrill Lynch & Co.'s acquisition this week of a 401(k) record- keeping company to bolster its presence in the retirement business, more banks competing in that area may well look to do the same.

Two banks have already pursued a similar strategy. Last year Mellon Bank Corp. acquired Buck Consultants Inc., an employee benefits consulting firm, and in May, Bank of New York bought Stanwich Benefits Group Inc.

Merrill announced Tuesday that it had bought Masterworks, a division of Barclay Global Investors, for an undisclosed sum.

"Record keeping is the foundation upon which the 401(k) business is built," according to Paul Kampner, of TMark Associates, a 401(k) advisory service in Chicago.

He noted that banks will probably continue to look out for record- keeping firms in an effort to be bigger players in the field. Mr. Kampner said this was Bank of New York's motivation in buying Stanwich.

"The business is a clearly a scalable business and what acquisitions do is they help that scalability ... you can move from one level to another level instantaneously instead of doing it plan-by-plan," Mr. Kampner noted. He declined, however, to speculate on who might be looking for acquisitions.

But the record-keeping side of the 401(k) business is not a high-margin area, according to industry experts.

Adele Heller of Rogers Casey & Associates in Darien, Conn., noted that it might be cheaper to rent the capability, given the technology- driven high costs.

Ms. Heller said buying Masterworks would give Merrill "the tools they need to get the job done, but it's not a golden egg." The leaders in the 401(k) business "invest tens of millions of dollars every year just to keep the thing up to speed," she noted.

But Merrill's strategy in the acquisition of Masterworks is to make the firm a bigger player, according to John McCluskey, director of marketing and administration for group-employee services.

"It's a very competitive industry. It's finding the qualified people to help us continue our rapid growth as well as the ability to attract 170 clients at one time," he said. The clients Merrill is acquiring are largely midsize companies, he said. Merrill did not acquire any of Masterworks' assets under its agreement with Barclays.

Mr. McCluskey declined to comment on profit margins in the record- keeping area.

For banks, meanwhile, some might be better off buying not just the record-keeping capability, but the whole 401(k) package, according to Phillip Maisano, chairman of Evaluation Associates in Norwalk, Conn.

Charles Schwab & Co. has the most attractive 401(k) product if a bank was interested, because they offer "everyone's fund," he noted. "They've licensed banks to use their product, but no bank has acquired them," he noted.

Added Mr. Maisano: "If you want to make money in the business, you better be managing some of the assets."

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