Bank of America Corp. expects “significant” growth in 401(k) assets this year, but analysts are skeptical about where and how the banking company can expect to generate new business.
Bank of America Merrill Lynch Retirement & Benefit Plan Services [BAC] reported that 401(k) assets increased 15.6% in 2009 to $81.5 billion from a year earlier. Kevin Crain, the head of institutional client relationships for Bank of America Merrill Lynch, said in an interview that the company is projecting significant growth in new clients and new assets this year.
But analysts say it could be difficult to generate additional 401(k) business because employers are reticent to change providers.
“Right now, employers are focused on running their business and don’t want to take the time to switch 401(k) administrators,” said Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I. “This is a good initiative for Bank of America, but meaningful growth is a question mark.”
Bank of America Merrill Lynch had a meaningful increase in retirement “saving trends” last year, Crain said.
According to the company, 80% of BofA’s 1.5 million 401(k) participants who changed their savings rate in the fourth quarter chose to increase savings, compared to 64% in the previous quarter.
More than 402,000 employees took a “positive savings action,” by starting or increasing savings in their 401(k) during the fourth quarter. During the first nine months of last year, 318,884 employees took a positive savings action.
Crain said that Bank of America had an increase in 401(k) assets last year because of an increased use of automatic enrollment and more employers tying 401(k) enrollment to healthcare enrollment.
“It is all about making these programs as easy as possible to get into,” he said. “People are overloaded with communication and generally this causes them to shy away.”
He said the company has seen “double digit” growth in automatic enrollment. “We are seeing that when employees auto enroll, they stick to it,” he said.
Bank of America Merrill Lynch has also had strong growth in usage of its Advisor Access Solution, which specifically recommends savings options to employees. Of its 401(k) clients, 25% are using the advice platform and 60% of its top 40 largest clients.
“Year over year, for the past three or four years, we have seen strong growth in clients using our Advice Access,” he said. “Certainly there is a lot of interest from our upper market.”
Crain said the best way to grow from here is to tie an individual’s 401(k) account more closely with healthcare enrollment. He said Bank of America is developing a new tool that it will launch next week that allows plan sponsors to measure their employees’ “financial wellness” based on a variety of factors. “By having a more unified offering, it really makes it easier to engage employees,” he said.
Bobroff said the breadth of products and services that Bank of America Merrill Lynch can offer is impressive, but he is skeptical that it will lead to more assets.
“The various bells and whistles are impressive, but I don’t think there will be a lot of documented success,” he said. “I guess in a world where they don’t have a lot of positives to talk about, this is something they can put their finger on.”
Adding retirement assets has been a major initiative at BofA since the company hired Sallie Krawcheck in August as the $2.39 trillion-asset company's head of wealth management and brokerage operations. In October, BofA rolled out My Retirement Income, a group of products that let customers nearing or in retirement automatically transfer funds from a Merrill Lynch cash management account into a BofA deposit account monthly or quarterly.
Andy Sieg was hired by Krawcheck from Citigroup Inc. to lead Bank of America's retirement growth initiative. The company had $450 billion in retirement assets under management at the end of last year and is looking for ways to cross-sell Merrill Lynch’s products and services to BofA's existing corporate and middle-market customers.
In January it launched a new marketing campaign as part of this cross-selling effort.