In a deal valued at $10 million, Bisys Group Inc., a Little Falls, N.J.-based computer services firm, has purchased a company specializing in servicing investment products.
The acquired company, Barclay Group of Ambler, Pa., handles record keeping and account administration related to the 401(k) plans of about 2,000 companies. Barclay was a subsidiary of Ethyl Corp., Richmond, Va.
The 401(k) programs in place at these companies are usually the products of brokerage houses, insurance firms, or mutual fund companies.
But an increasing number of banks are selling 401(k) products to their corporate and retail clients.
Latent Market Cited
And while most of the institutions currently engaged in this business are large organizations that have the resources to handle the related record keeping and account administration in-house, Bisys believes there is a latent market for third-party servicing of the 401(k) plans sold by smaller banks.
"People are now putting the money they used to keep in savings accounts [at banks and thrifts] into qualified contributions plans," said Bobby Jones, vice president in business development at Bisys.
Mr. Jones said the market Bisys intended to target with its new 401(k) services -- financial institutions with under $2 billion in assets -- is largely untapped. Figures from Access Research Inc. in Windsor, Conn. suggest that this is true.
Access found that about 82% of businesses with more than 1,000 employees currently have 401(k) plans in place. By contrast, only about 29% of companies with between 100 and 500 employees have plans, and only 9% of companies with fewer than 100 staffers offer 401(k).
Bisys bought Barclay on the hunch that the 400 small and medium-size banks that make use of Bisys's other computer services are eager to sell 401(k) products to these smaller businesses but have been unable or unwilling to handle the attendant administrative duties.
Barclay's business is focused on companies with 1,000 or fewer employees with a concentration on businesses with less than 500 staffers.
At least one banker believes that Bisys has made the right move.
"We are active in the cash management business, and not being able to offer a 401(k) product has always been something that made it hard for us to effectively compete for business with larger institutions," said Joseph Matlock, president and chief executive officer of Franklin Federal Bancorp, a $1.6 billion federal savings bank based in Austin, Texas.
"Having the ability to offer 401(k) type products to our corporate base and our retail customers is something that absolutely interest us."
Once the Barclay acquisition is complete, Bisys will be able to handle a wide range of 401(k) activities on behalf of its banking clients.
When a bank representative finds a company that wants a 401(k) plan, Bisys draws up a proposal with the bank. Upon acceptance of the proposal, Bisys takes over full administration and record-keeping responsibilities.
This includes things such as producing and mailing participants statements and doing daily valuations of the funds within each plan.
Bisys also will convert the company from an old 401(k) plan to a new one, if necessary. In addition, Bisys can process loans from the 401(k) plan on behalf of the bank.