Our newly updated DC Provider Consolidation Report shows that consolidation heated up dramatically in 2014, with 13 deals — up from six in 2013 and just three in 2008. The percentage of record keeper deals last year was 69% — up from 33% in 2013.
To gain some insight into what we can expect in three to five years as the inevitable DC record keeper consolidation heats up, we only have to look at what’s happening today in the airline industry.
According to a recent USA Today article, despite lower costs as a result of lower fuel costs and other factors, fares have never been higher, flights have been eliminated — and airlines’ profits and stock prices are soaring. There are now only four major airlines, three of which (United, Delta and American) have the same business model. The fourth, Southwest, dances to the beat of a different drummer — just like Vanguard.
The DC industry’s “frequent fliers” — top advisors and big teams/BDs — will get special perks, but they will pay for it. And though the big record keepers will use extra profits to help boost AUM and create savings that may benefit clients, they will pay for it too.
So what’s the analogy for fuel costs in the DC industry? That would be fund prices, which continue to drop as indexers like Vanguard and BlackRock gain traction and smart beta makes big inroads. On the other hand, although air fares are up, the transportation system is running better than ever — which may also be the case for the DC industry.
