Online services that match 401(k) plan sponsors with plan providers are making it easier for plan providers to market directly to small and medium-sized plan sponsors, according to industry executives and analysts.

Companies like of Lake Worth, Fla., of Mendota Heights, Minn. and 401Konnect of Palo Alto, Calif., allow plan sponsors to post their retirement plan criteria online and providers can then respond to requests for proposals using a pre-fabricated format. The sites allow plan sponsors to quickly narrow their lists of possible plans while opening a new method for providers to gain access to the small business retirement market, said J. Chris Lynch, president of 401kExchange.

Since launching its service that matches sponsors with providers in January, has processed over 600 requests for proposals, representing $2.4 billion in assets, Lynch said. The service is free to plan sponsors and intermediaries. The firm charges providers a $225 fee to respond to requests for proposals, Lynch said. Currently, 401kExchange has 70 different plan providers using its matching services including Putnam Investments of Boston, Strong Capital Management of Menomonee Falls, Wis., T. Rowe Price of Baltimore, Scudder Kemper Investments of Boston and GE Investments of New York. The firm also provides research and ratings of 401(k) plans that plan sponsors and intermediaries can use to select plans.

The site makes marketing to small and medium-sized sponsors more viable than it once was and was a factor in American Century's decision to enter the market, said Dave Mathwig director of special projects and direct marketing for American Century of Kansas City, Mo.

"The competition for the mid-to-large sized [plan sponsor] market is so incredibly fierce," he said. "The last frontier in the 401(k) and retirement plans is the small business owner who has not been addressed. With the web and large service provider partners, we've found a way to penetrate that market place."

American Century opened its full service 401(k) plan for businesses with under 500 participants in October, 1999, Mathwig said. The firm aligned with Automatic Data Processing of Roseland, N.J. which handles all of the record keeping and sales support, he said.

American Century is going after the small business retirement market because of the potential it has for producing new assets, Mathwig said. There are 25 million small business owners and about seven million of those businesses are being targeted by American Century, he said. Of those seven million, only 25 percent currently offer a retirement plan for their employees, he said.

The small business market also offers American Century an opportunity to cross-sell wealth products to small business owners, many of whom are high-net worth investors, Mathwig said.

Even though the small business market is relatively untapped, the firm's late entry and financial intermediaries' dominance in selling retirement plans to small business owners will make penetrating the market a challenge, Mathwig said.

"But the world is changing and as the Internet becomes more prominent and as [business owners] become more amenable to doing business over the web, the [providers] that approach it properly can increase their share," he said. Roughly 80 percent of the retirement plans sold to small and medium-sized businesses are sold through a financial intermediary, Mathwig said.

American Century's strategy relies heavily on its relationships with online businesses that facilitate those sales, he said.

Fidelity Investments of Boston is another firm that has been trying to market to the small business retirement market using an Internet-based product. The company began offering its e401(k) product on its website last year and will represent 750 plan sponsors by the end of this year, according to Fidelity.

Late last month, the Principal Financial Group of Des Moines, Iowa agreed to participate in 401Konnect's online matching service, the two companies announced. The Principal Financial Group sells its 401(k) plans to small businesses through a network of brokers and financial intermediaries and is one of the leading providers in the small business retirement plan market, said Ted Benna, president of the 401(k) Association of Bellefont, Pa., an advocacy group.

One of the great attractions of marketing 401(k) plans to small businesses online is its cost effectiveness. Because the costs of submitting requests for proposals online are relatively low, plan providers have found that they can market to a broader audience, said Benna.

For larger plans with $10 million to $100 million in assets, a plan provider can expect to spend up to a year courting a plan sponsor and spend around $100,000 just to win the business, he said. Issuing a request for proposal alone can cost nearly $20,000 and only one out of every five proposals will result in a new client, Benna said.

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