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READER POLL: What’s the Impact of Recordkeeper Consolidation?

Industry Trends and Research

Seems like as long as there has been a recordkeeping “business,” recordkeepers have been “consolidating”—this week we asked readers to weigh in on the current trend/wave.

Roughly two-thirds of this week’s respondents had worked with recordkeepers undergoing consolidation as the consolidate, and another 25% as the consolidator.

Asked to describe what happened:

47% - Some clients converted, others looked for/found a new provider.

19% - Clients converted without incident.

17% - Clients considered alternatives, but converted.

11% - Clients converted—but it was rough.

6% - Clients moved to another provider.

“The client’s RK was acquired by a RK that we felt would not be able to handle the plan in as customized manner as the prior RK,” noted one reader. “We took the time to conduct an RFP and the decision was made to hire another RK.”

“When there is change and the current recordkeeper has been performing just adequately or underperforming, the consolidation provides an opportunity to view options. No one really wants to go through the time and potential pain to change until they have to. But if you are forced to make a change, you may as well look at your options,” commented another.

“From a service provider viewpoint—Acquirers often desire their own vendors, of find many services and roles redundant post acquisition,” another noted. “Consolidation has dwindled opportunity for innovation and service to the Recordkeeping Community.”

“Change is WORK (added) to our annual schedule for clients,” commented another. “The players making the deal don’t care about their distribution partners’ extra work... Work that we do because of our clients’ faith in us and our accountability to them. The biggest one we are dealing with currently is XXX to YYY... lots of start-up story of this will be great yet now starting to see things will change this way...”

Service ‘Stations’

We then asked—after the aforementioned consolidation—what happened to service levels (generally speaking):

58% - Comparable service.

24% - Deteriorated services levels.

8% - Better service.

7% - OMG, so bad.

3% - Much better service.

It’s been better and worse. Very client specific.

While generally comparable, some deteriorated. Almost never is it better.

Same service team. they were overly attentive for fear of losing the client.

On average, comparable service—some were worse off, some better off.

Depends on the RK—one RK that acquired had massive dropoffs in their already poor service, while another acquiring RK showed absolutely no change. I guess it depends what ground you start off on.

Service was bumpy while consolidating roles and everyone learning. As the advisor, we absorbed a lot of the bumps. It has been over a year and service is pretty solid now.

Fees ‘Sense’?

We also asked what had happened to fees following consolidation, and readers said:

70% - Fees about the same.

17.5% - Fees lower.

7.5% - Fees about the same in total, but different.

5% - Fees higher.

“It is always a bargain in the beginning, but fees rise when competition is reduced and choices are less,” noted one reader.

Consolidation Considerations 

So, then we asked readers—generally speaking—what they thought about recordkeeper consolidation—and allowed them a variety of choices (and encouraged them to choose as many as they thought applicable):

69% - It’s inevitable.

47% - Survival of the fittest.

20% - A necessary evil.

20% - it’s real pain in the a*s

18% - It’s... complicated.

2% - It’s all good.

“That said, I don’t consider it particularly positive,” commented one reader. “I recognize why the consolidation is occurring but you know what happens when monopolies are created. Already feeling like the pendulum is swinging back to the ‘good old days’ of pushing loads of proprietary product. I get it but I don’t get it. We hired you as a RK. Why should that mean we should buy your funds, products and services for other stuff you want to sell (to prop up your margins). Will RK just become a loss leader and the vehicle to sell other products? Don’t get me started... could go on and on on this subject.”

More comments:

I think it just happens although many of the so-called changes are not really improvements it’s just hype about a twist on an old scheme.

The increasing technological and regulatory demands combined with implementing additional services such as Financial Wellness along with price compression demand more and more scale in terms of increased assets and participants. It happens in most financial fields. Recordkeepers, TPAs and retirement plan professionals have and are going through the same scenario that banks went through previously. You must adapt or perish! The winners over the long haul will be the ones that understand that providing consistent quality service is the key to long term growth and profitability.

Combined technology expense and cybersecurity demands coupled with fee compression, makes it inevitable.

The model is challenged and the providers are looking for revenue growth, buying is a simple and easy method. For the client of the acquirer, there is significant disruption whereby leadership is very distracted.

As long as the industry does not consolidate to one, i.e. the government. It is bad enough that a few large players dictate the business. But, that is commoditization—Amazon everything.

It’s complicated because it is a guessing game and affect the level of service my clients receive from one R/K to another.

I definitely don’t think is ‘a necessary evil’ or ‘all good.’ I feel it’s the same as the consolidation in mobile phone services, electric companies, etc. Large entities with a monopoly are never a good thing for anyone but the owners/directors.

Advisors forcing record keepers to race to the bottom. Guess whose fees are next—Advisory fees!

Other Comments

Besides consolidation there are other revenue grabs in play that need to be monitored, i.e., investment management contract revisions. CITs are coming more common. More work for same revenue.

We’ve been leery about doing business with those that didn’t seem committed to the space either in word or deed. As a result, we’ve (knock on wood) been largely unaffected by consolidations and I’ve been heckled by others for not doing business with a recordkeeper if my spidey-sense was tingling. However, in our sales outreach we have definitely heard more than one nightmare story about converting to the acquirer.

Though down from 400 recordkeepers a decade ago, with still approximately 150 recordkeepers remaining, I think we can expect more of the same in terms of consolidation.

I have been in the industry for almost 30 years and consolidation is inevitable. I worked for an RK for years as well. Change is bumpy. But so is de-converting/converting to avoid a consolidation.

And then there was the reader who commented: “Despite all the consolidation, among the 10 or so recordkeepers our firm worked with back in 1991, amazingly 4 still remain today; Fidelity, Vanguard, Principal and Prudential.”

Thanks to everyone who participated in this week’s NAPA-Net Reader Poll!

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