Quietly and thoughtfully, Alerus Retirement Solutions, an affiliate of Alerus Financial Corp., a North Dakota based bank, has become a national DC record keeper, boosting its assets to $23 billion with the recently announced acquisition of the ABG group in Minnesota, which has $6.3 billion.
The Arends brothers Grant and Brad who founded and ran ABG MN will keep their advisory business,[1. NOTE: The acquisition of Alliance Benefit Group North Central States, Inc. (“ABGNCS”) does not include Alliance Benefit Group Financial Services, Corp. (“ABGFS”) or Alliance Benefit Group of Kansas City, Inc. (“ABGKC”). Both consulting companies, ABGFS and ABGKC, will continue to be owned and operated by Brad and Grant Arends. ABGFS and ABGKC are separate and distinct companies from ABGNCS, and will continue to operate in their existing capacities by providing employee benefit consulting and investment advisory services to clients.] which has $2.6 billion, $2 billion of which is record kept by the group they are selling. Steve Pulley, President of ABGNCS, will join Alerus to lead and grow the new complementary employee recordkeeping and benefit services underneath the Alerus umbrella.
Conventional wisdom says that only large record keepers with ancillary products to sell, large distribution systems and tens if not hundreds of millions to spend on technology can survive long term in the DC record keeper business. But there’s a niche being filled by firms like Ascensus, Verisight and Alerus focused on the smaller DC market and offering open architecture menus that make sense for each of the individual entities. Alerus, like most banks, is looking to expand beyond interest revenue — retirement services now account for 36% of the bank’s revenue, which has 64% of its revenue coming from non-interest products.
“We were not caught up in the banking crisis,” notes Alerus Financial President and CEO Randy Newman. “We want to be the acquirer of choice in the DC record keeping market.” Brian Overby, who runs Alerus’ record keeping division, commenting on the ABG Minnesota acquisition, said, “Along with DC assets, we like ABG’s HSA and payroll capabilities. We plan to keep a service center in Minnesota and a substantial number of the employees.”
Brad Arends of ABG wanted to keep growing their record keeping division which, at $6.3 billion, is one of the largest indie TPA record keeping shops around, but noted, “We outgrew the Relius system and did not have the capital to either acquire other shops or upgrade our technology. We were losing out on larger opportunities and seeing some of our bigger clients leave. We go from being outgunned in the record keeper space to being one of the largest DC focused advisory shops with $2.6 billion.”
There are 600 record keeping TPAs, as opposed to nearly 4,000 TPAs that do compliance. Only 50 record keeping TPAs have more than $750 million in DC assets — big enough to be attractive and dangerous but most without sufficient capital to invest or resources to build a significant distribution network. As the owners get older, they face the decision to invest, sell to employees or sell to outside entities — all of which can be difficult decisions with serious implications.
Look for firms like Alerus, Epic and BPAS — all owned by regional banks — to continue to acquire while others like Ascensus and Verisight — owned by PE firms — do the same. As for the over 500 record keeping TPAs with less than $750 million record kept, many with just $100 million or so who built their business bundling record keeping, compliance and advisory services, the future is less clear, though the challenges are no less daunting.
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