The prevalence of private equity in the market and its desire to invest also have given pause to would-be buyers. But don’t buy a book and then leave it.”Ī strong market is partly responsible for the subdued level of merger activity since the end of 2015, experts said - it helps dull the sting of fee compression. “If you’re committed to that book of business, good. “I don’t really care as long as the major people I work with and their service don’t go bad because of it,” said Shawna Christiansen, a consultant at Retirement Benefits Group. Some advisers don’t see record-keeper consolidation as a gloomy proposition, though - they even see it as a benefit if firms continue improving their offering. “You can’t get a Maserati on a Kia budget.” “For an adviser like me who has plans that may not be $50 million, but by definition are complex, where do I go?” she said. For example, a firm that accommodates and services a small but complex plan today may not do so in the future - potentially leaving the adviser and client with fewer and unappealing options.
“If you can’t, why the hell do you want to be in the business?”Īdvisers should be concerned because the remaining providers will likely look to get rid of plans they can’t make money on, or impose restrictions, asset minimums or bifurcated business models based on plan size, Ms. “If you can make money in this business you’ll want to stay in this business,” she said. And, to a certain extent, advisers have contributed to record-keeper consolidation because of their continued push for lower fees, Ms. Record keepers’ coffers aren’t as fat as they used to be.
The portion of DC plans using their record keeper’s target-date fund fell by more than half, to 23%, between 20, according to Callan. To add insult to injury, 401(k) plans are using proprietary funds less frequently than in the past. This is the case for most major record keepers, which are primarily insurers and fund managers. The latter trend hurts firms that derive revenue not just from record-keeping but from participants investing in their in-house funds. 401(k) investors paid an average 0.48% asset-weighted expense ratio for equity mutual funds in 2016, compared with 0.74% a decade earlier - a drop of 35% - according to a joint study conducted by BrightScope Inc. Median record-keeping fees dropped by around half over the decade between 20, from $118 annually per participant to $57, according to NEPC, a consulting firm. “Anyone with 1 million participants or more either has the scale to go it alone, to acquire or survive easily,” Mr. That universe, which includes national as well as smaller regional and local firms, has shrunken to around 160 today, he said.
record keepers (which track employee assets in retirement plans), according to Peter Demmer, CEO of consulting firm Sterling Resources Inc. Going back just a decade, there were as many as 400 to 450 U.S. Provider consolidation has been a steady force in the retirement industry since its early days. “It’s getting worrisome,” said Ellen Lander, principal and founder of Renaissance Benefit Advisors Group. While advisers don’t view mergers among big-name providers as inherently bad news, they see a reduced pool of record keepers as a potential problem - fewer firms able to service quirks and complexities among clients’ 401(k) plans, and a greater ability to impose restrictions and push proprietary products to boost margins. And the next round of deal-making is likely to yield some whoppers, they say. While deal activity has waned since a feverish pace of blockbuster acquisitions leading up to 2016, experts believe the frenetic activity will resume within two years’ time - especially if there’s a downturn in the stock market.