Retirement savings may swell to $4 trillion over the next four years and the largest banks want a bigger share of that money.
Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are adding staff, creating easier-to-use technology and competing on fees to win more of the $2.9 trillion Americans held in 401(k) savings plans as of September from traditional account managers such as Fidelity Investments and Vanguard Group Inc. That number may reach $4 trillion by 2015, according to Cerulli Associates, a research firm.
"It's one of the top priorities," at JPMorgan Chase, said Michael Falcon, whose job as head of retirement in the U.S. and Canada for the bank's asset management unit was created in January.
Competition may mean lower costs and more choices for employers and savers, said Laura Pavlenko Lutton, an editorial director in the mutual fund research group at Morningstar Inc.
Over the past 20 years, 401(k)s have become the fastest-growing retirement savings option for U.S. workers, according to the Employee Benefit Research Institute. These assets tend to be "sticky money," said David Wray, head of the Profit Sharing/401k Council of America, which is appealing to banks because of continuing fees and contributions to the accounts.
Banks may have to overcome a perception that mutual funds are not their expertise, said Lutton. "Their main business is taking deposits and making loans," she said.
The average 15-year return of mutual funds including stock, bond, alternative and balanced investments from Wells Fargo and JPMorgan Chase as of January was about 6%, Morningstar data shows. That compares with about 7% for the mutual fund managers Fidelity, Vanguard and T. Rowe Price Group Inc. B of A does not offer its own proprietary mutual funds, according to a spokesman.
Banks must compete on investment management fees with companies such as Vanguard, which pioneered low-cost index investing. Vanguard charged an average 0.19% for its target-date funds, according to a Morningstar report. Such funds are the most popular investment in 401(k) plans for workers who do not choose their own lineup. The 0.62% average fee for Wells Fargo's target-date series was more than three times Vanguard's cost. Fidelity's expense ratio was 0.71% and JPMorgan Chase's 0.85%, according to Morningstar.
The banks' push for more of workers' savings may mean less revenue for the top three 401(k) administrators: Fidelity, Aon Hewitt and Vanguard.
"We've been upping the ante on retirement," Andy Sieg, the head of retirement services at Bank of America Merrill Lynch said in a interview in January. B of A added about $88 billion in 401(k) assets from its 2009 purchase of Merrill Lynch, a spokesman said. B of A has been beefing up its retirement services staff with executives from other companies.
JPMorgan Chase roughly doubled its sales force dedicated to retirement plans in the past year, Falcon said. Wells Fargo meanwhile has been adding features that allow employers to more closely track the savings and investing behaviors of their employees, said Laurie Nordquist, the company's director of institutional retirement and trust.
Sieg said B of A will be able to claim market share by winning the plans of corporate customers of its banking business. "We have access to more client companies than any other firm in the marketplace," he said. "We're just beginning to scratch the surface of that opportunity."
