A few big money managers have increasingly dominated market share in the 401(k) business over the past few years, but the consolidation is expected to slow, an industry expert said.
Peter H. Starr, a consultant with Cerulli Associates Inc., Boston, said the companies that lead the market-such as Fidelity Investments, Vanguard Group, and State Street Corp.-are increasingly giving 401(k) participants access to other fund families.
For that reason, companies other than those that dominate the 401(k) business will be able to gain market share, Mr. Starr said at a conference last week in New York sponsored by the National Defined Contribution Council, an industry group.
The trend toward this "open architecture" has been spurred by consumer demand for more investment choices, he said.
"Clients that have bought bundled packages have not necessarily been happy with them," he said.
Improved technology has made it easier for 401(k) providers to offer funds from outside companies. The rapid consolidation of 401(k) assets among a few big players is striking.
At the end of 1997, 24 providers laid claim to 85% of assets, up from 78% a year earlier. The top 10 companies accounted for 63% of assets at the end of 1997, up from 55% a year earlier, Mr. Starr said.
An increased desire for more investment choices and a more active role for 401(k) participants is reflected in the fact that 3% of the nation's $925 billion in 401(k) assets are in brokerage accounts within the plans, he said.
That is a big number, given that the brokerage option became available just five years ago, Mr. Starr said. He added that after perhaps two more years of gradual growth, the brokerage component of the 401(k) industry will probably increase "exponentially" as investors become more comfortable with the option.
Total assets in 401(k) accounts are expected to rise to $1.5 trillion by 2001, Mr. Starr said, with most of the growth coming from businesses with fewer than 500 employees.
The National Defined Contribution Council is made up of companies that manage more than 70% of the 401(k) assets in the United States and provide administrative services to more than 60% of all plan participants.