There’s a lot of talk about how advisors are, or are thinking about, cutting back on the recordkeeping providers they work with – but is it just talk, or just beginning?
Among respondents to this week’s NAPA Net reader poll, a slight plurality (35%) are working with 5-10 recordkeepers, with 24% partnering with 10 to 15, and another 19% teamed up with 3 to 5. Just under 5% each worked with 1 to 3 and 15 to 20. The remaining 12% were working with more than 20.
For most respondents – 73% – that situation was pretty much the same as a year ago. For about 11%, it was less, and for 16% it was more.
What’s Ahead?
However, most – nearly 41% – said they weren’t planning to reduce that number by the end of the year (though one reader said, “But I wish I was”), though about half that number (23%) said they would, and another 27% said they might. The rest didn’t know.
One reader commented, “I would like to remain more concentrated with providers whom I know best and work with best, but in remaining ‘independent’ it's difficult to not grow (over time) the number of recordkeepers you work with unless you're willing to walk away from business because of a prospect’s recordkeeping partner.”
As for the criteria those who would be making a change would be applying, it was a diverse list, though quality of the relationship and quality of the support team topped the list, with nearly 80% of respondents selecting them. The respondents’ view of the sustainability of the recordkeepers business model was a distant third, cited by nearly 58%, just ahead of the number of shared relationships (53%). And while it surely bears on the sustainability question, fewer than a third (31%) were focused on profitability. One reader noted that they would “…focus on the ability to be open architecture on investments and utilize the same custodian across the board.”
Consolidation Criteria
Asked to pick a primary criterion, however, there was no contest: Quality of the relationship drew the support of more than 4 out of 10 respomndents, while other criteria drew less than half that number. Though, as one reader noted, “Sustainability of their business is a close second lately. Specifically, do they have the ability to offer open architecture and zero revenue share platforms.”
“Though theoretically we would love to reduce the number of recordkeepers utilized by our clients, we feel that from a practical standpoint we would be doing less than our best job, or perhaps even compromising our ethical/fiduciary commitments, to limit the available pool of recordkeepers to our clients,” explained one reader. “That is something product sales people do, not consultants/advisors. There are a lot of subtle differences between providers, and differences in the preferences of our clients, and I feel our firm should only consolidate recordkeeping relationships to the extent that we can do so without compromising either client preference or superior recordkeeper match to client needs.”
Another reader said simply that, “Recordkeepers that make working with them simple and straightforward and that do what they say they will do will be preferred.”
While the sample size was small, a plurality (37%) of the TPA respondents to the poll said they weren’t seeing any consolidation moves by advisors, and nearly as many acknowledged that while they were seeing some, it was still more talk than action. A quarter said they were seeing a pickup in that activity.
Other Comments
We got a lot of interesting comments on this week’s poll, including these:
- “We see a trend developing for advisory firms to consolidate their provider relationships but are concerned that it is likely to quickly evolve into a situation similar to the old days where broker-dealers advertised an objective ‘search of the full market’ but actually pushed the same handful of preferred providers without disclosing their bias to clients. This new situation would similar in its driving factors being the self-interest of the advisor or advisor’s firm, but with sufficiently evolved nuance that it passes under the fiduciary and regulatory radar.”
- “I think the recordkeepers that are set up to give most versatility to the industry in terms of fund revenue sharing or fee neutralization will be the winners of the market place. At least in the under 20 million market.”
- “I'm looking for quality recordkeepers right now. The quality on the large end seems to have diminished recently and while not announced we worry about some recordkeepers getting out of the business and the number of providers on the small end is shrinking due to mergers and acquisitions and it’s tough to recommend a recordkeeper whose going through a significant platform migration.”
- “I believe it is our job — as consultants — to work with whoever our client/the plan sponsor is comfortable working with, but — if they exist — to point out deficiencies in the RK service model that might be creating to increased compliance risk or internal inefficiencies. If the plan sponsor thinks the risk justify making a change then we suggest moving to one of our ‘preferred provider partners.’”
- “By creating a robust due-diligence program for TPAs and recordkeepers, I have been able to maintain a stable of 3-5 providers for almost 2 decades. This has not only allowed me to know everything, good or bad, about the providers I work with, it has provided an opportunity to influence product and services offerings from the field level... what the client and participant really need and want! … Too many new shiny tools are developed in a ‘think tank’ instead of canvasing the field for the real needs of the plan and participants; I appreciate providers that solicit my input before spending their development dollars!”
- “Consolidating is a wonderful idea, but it'd difficult to do because although it may make life easier on my service team, it’s not always best for the client. I have tried to focus on working with only ‘A list’ providers who I feel will remain players in this space, but even when you consider that there are many options, including some you have had negative experiences with or outlooks upon … When you have a just a few plans with a recordkeeper you’d prefer to move away from, you also run the risk that the client will view the entire relationship at risk and that may include them evaluating if they wish to work with you as well. Converting a plan under any circumstance is a lot of time and effort, so it’s not something that an advisor will typically want to do.”
Or, as another reader explained, “I think there are too many recordkeepers and too many mutual fund providers in the marketplace and there will be consolidation coming with the new regulations.”
Thanks to everyone who participated in our weekly reader poll! Got a question you’d like to run by our readers? Looking for some industry insights? Post it in the comments section below, or email me directly at [email protected].
