Ascensus will purchase ExpertPlan, 401kWire has reported, significantly boosting its number of plans under management from about 25,000 to over 40,000 and making it one of the largest providers in the DC industry.
There are only a few providers that boast more than 40,000 plans, including John Hancock, ING, Principal, Paychex and Nationwide. The sale of Ascensus, owned by private equity fund JC Flowers, was reported to be close earlier this year, but the deal never went through — with some speculating that Ascensus could then go shopping to beef itself up for an IPO.
With greater fee disclosure causing price deflation among all providers and advisors, record keepers are being hit especially hard, with their services increasingly being viewed as a commodity. There are now 43 national record keepers, with the sale of Hartford to MassMutual pending, and only 18 in “401k Heaven” as defined by assets and participants under management as well as other factors. Though the DC market is made up of multiple sub-markets defined by plan size, experts agree that 43 providers in a heavily regulated, commoditized market that requires intense capital investments and hordes of people is too many. Just look to the airlines for a glimpse of what is likely to happen to DC record keepers. (Also see our Consolidation List.)
Ascensus and ExpertPlan are both in the small DC market, serving advisors primarily. Providers like them — ones that can make money on record keeping and not have to rely on revenue from proprietary assets — are valued more highly now, because the prices of active mutual fund businesses are falling and there is both market and regulatory pressure on proprietary fund placement.
The Ascensus Story
Ascensus has made a stunning comeback since the so-called “Bisys Crisis” in 1999, when partners like American Funds sent thousands of plans to Wystar during a system conversion that went really wrong. New management was brought in to make acquisitions, including the small-market Merrill Lynch business. Management then changed again under the leadership of Bob Guillocheau, who stayed through the divestiture of Bisys’ mutual and hedge fund business to CitiBank and the sale of its insurance business, including its record keeping operation, to JC Flowers. At the time of the sale, it was reported that the record keeping division was the least attractive asset. Flowers recently sold the insurance business to BB&T, which led to the failed attempts to sell Ascensus earlier this year.
Ascensus has done well with outsourcing, although GreatWest and DST have garnered some of the most recent larger deals, such as American Funds and Hartford respectively. Ascensus does a lot of businesses through Merrill Lynch, as well as many other major broker dealers, and has been able to leverage relationships with DCiO providers due to their open platform structure.
Ascensus is the largest open-architecture record keeping TPA that was early to market with a small-market, fee-based advisor model, as well as with the adoption of ETFs. With rumors circulating about the pending sale, it has been hard for them to do outsourcing deals — although they did manage to land Vanguard’s business recently.
ExpertPlan
ExpertPlan, founded by Win Cody in 1999 and now run by former ADP exec Julian Ornorato, was one of the three online record keepers spawned in the dot-com era, along with Emplanet and GoldK (both of which are out of business). Owned by private equity firms, some of which invested early, ExpertPlan has been on the market for a while. Earlier this year, for example, there were rumors of a sale to another private equity group. The firm, which deals with smaller and micro-market plans like solo K’s, has made a series of TPA acquisitions and has created joint ventures with payroll providers.
The Bottom Line
Record keeping is a scale business, with successful firms leveraging fixed costs over a larger base of business. The three main cost buckets are technology, service people and distribution. Ascensus will be able to leverage their infrastructure and technology even more with the incorporation of the ExpertPlan book of business, which is mostly compatible.
Ascensus has a relatively small and modestly paid group of about 12 wholesalers relying mostly on broker dealer, DCiO and outsourcing partners to refer business. ExpertPlan has even fewer sales people. Ascensus was well positioned beforehand, and the ExpertPlan acquisition makes them even stronger. With capital from JC Flowers, they seem well positioned to make even more acquisitions.
So what lies ahead? Even greater consolidation. The trick for advisors is not to get caught on the wrong side of them. And remember: watch the wholesalers.
