The pace of consolidation among archivists shows no signs of slowing down. Headline-grabbing deals of the past year, such as Empower’s purchase of the record-keeping business of MassMutual and Fifth Third Bank and Franklin Templeton’s acquisition of Legg’s record-keeping unit Mason, should continue a trend that has lasted for decades.
âIt is very difficult to make money in this industry, especially with the continued investment in technology that is required,â says Robyn Credico, Defined Benefit Consulting Leader at Willis Towers Watson. âThen you add financial well-being. You need something to be able to follow and also to stand out.
Only the big players can afford these investments without any certainty about their returns. In turn, they need additional plan members to share the fixed costs in light of the increasing cost compression.
But where does registrar consolidation leave plan sponsors, members and advisors?
Plan sponsors: a chance to cut fees ââ for now
For now, the consolidation of registrars has created a price war for registrar services that can allow plan sponsors to reduce overall plan costs.
âThe surviving archivists are trying to price the offers so they can turn plan sponsors away from other players,â says Jana Steele, defined contribution consultant at Callan. “We’ve seen a lot of benchmarking work this year in response to that.”
The prices are so aggressive now that Steele calls it “a bubble”. But this is not likely to last. “Eventually we’ll end up with some behemoths and [recordkeepers] end up controlling prices more? Steele said. âIt could end up being a problem. “
Willis Towers Watson’s Credico agrees and thinks plan sponsors need to be vigilant about pricing going forward: âThere are fewer options, which means the client may have less access to competitive prices, âshe said. This could be especially true for small diets that lack the power to grow back.
According to CapTrust, there are only about 150 pension plan archivists, compared to 400 ten years earlier.
Surviving registrars must abide by the terms of the contract that the plan sponsors have in place. But when that expires, there is an opportunity to renegotiate. Plan sponsors have a fiduciary duty to ensure that the new registrar continues to be the best option for their members.
Steele de Callan says she expects 15-20% of plan sponsors to find a new case manager following a merger. In addition, “I would expect 40% to 50% [of contracts] to launch a call for tenders within two years of an acquisition, âshe said.
Plan members: more sophisticated technological offerings
With financial well-being at the forefront of most pension plans, acquisition by a larger registrar could mean better access to these types of services for more plan members, according to the plan members. observers. Large registrars have the financial means to invest in better technologies such as mobile apps that can improve employee financial education and help them invest better.
âWe have seen a K-shaped recovery during the pandemic, with some people doing really well, working from home and so on. and some people are completely devastated financially, âsaid Rebecca Hourihan, director of marketing at 401 (k) Marketing, a company that helps financial advisors market retirement plans. “Financial well-being is now essential on both sides of the K equation.”
As archivists develop their capabilities, they will introduce more and more automated processes, Steele believes.
âTake the backdoor IRA option,â she says. âIn the past you had to call and fax to make this happen, but over the past 10 months I’ve seen two archivists who can do it now and a third is exploring it.
But consolidation doesn’t automatically mean improved innovation, Hourihan says. Archivists still have to overcome technological hurdles to provide optimal services. One of the most important is integration with payroll. If a plan member changes their deferral rate – which is not uncommon during times of financial stress – it can take several weeks for that change to be reflected in their paycheque.
“This is something we expected to be in place by the turn of the century,” notes David Ramirez, co-founder and chief investment officer of ForUsAll, which fills the gap in record keeping services for diets.
Plan sponsors can use mergers as an opportunity to assess all archival services and negotiate others.
Financial advisers: an opportunity for more commitments
For advisers who work with pension plans, the rapid pace of mergers and acquisitions can spell a business boom.
âIt’s a prospecting opportunity for advisers, that’s for sure,â Hourihan says. âIf you follow the structure of an investment policy statement, every time there is a change of investment manager, you are looking at the investments. The same fiduciary process would apply in the event of a change of archivist.
Since plan sponsors must undertake the due diligence process to assess the new entity, they are likely to seek help from their advisers. And if the new accountant is not deemed satisfactory, advisors will be asked to help their clients assess new partners.
On the other hand, advisers might see increasing competition from more robust archiving services, especially those offering more ancillary services such as robo-counseling or student loan management. The best defense is to be proactive, Hourihan says.
âThe advisor could take this opportunity to introduce employees to training, automatic enrollment and managed accounts,â she said. âThis can be a great opportunity for advisors.