Seems like every couple of weeks a firm is either acquired, or decides to step away from the complicated business of participant recordkeeping—and that’s a year after the most recent wave began. This week, we asked readers how they’re going.
Without question, recordkeeping is a tough and demanding business. Done properly, it requires large and consistent investments in technology and people, and though it’s often described as a “commodity” business, it’s also one that requires that you do everything 100% right every time. Little wonder that there are regular waves of consolidation, with those less able (or willing) to make those commitments exiting the business, either by default or by acquisition.
Earlier in my career I had the opportunity to be on both sides of a similar consolidation “phase.” To characterize the challenge as being roughly equivalent to changing horses in the middle of a raging torrent in the middle of a hurricane, with wildfires on either bank would not be too much of an exaggeration. Recordkeeping is tough, complicated work—and as often as not there were problems or customizations at the acquired firm that are not readily remedied or accommodated. And let’s face it, change may eventually be good—but the process behind it rarely is. With that in mind, let’s hear what readers had to say.
How Many RK Relationships?
We asked readers how many recordkeepers they work with:
50% - 5-10
15% - 5
15% - More than 10
12% - 4
4% - 2
4% - 3
No respondents worked with just a single recordkeeper.
I work with 2 for most of my clients, but have a few others I work with one client on.
The consolidation process that has been going on limiting to say the least
We try to limit new plans to 5 recordkeeper with different pricing structures, features (HSA integration as an example), and strengths. We limit to a smaller number for efficiency and developing experience as TPA and advisor with the RKs. We have plans with other recordkeepers due to stepping into existing situations AND due to one-offs where we tried a recordkeeper but did not pursue the relationship.
How Many Acquired/Exited?
Next, we asked of the recordkeepers they actively work with, how many have been acquired/exited the business in the past two years?
33% - 1
33% - 2
21% - 3
8% - None
4% - 4
1% - 5
I work with two that were the acquirer. I didn't work with any that were acquired. But going through the conversion prior to RFP was not fun.
We are generally more reluctant to work with smaller recordkeepers (in spite of our love of smaller businesses in general) due to this risk. It is a hassle when one is acquired and you end up with a different dancing partner than the plan sponsor and you chose.
How’d It Go?
As for how those conversions actually went:
44% - About what was expected.
19% - Pretty much as rough as I had feared.
17% - Worse than expected.
10% - I'll let you know when it's over...
8% - None to date.
2% - Much better than expected.
We have had clients in all of the Waves. Currently on Wave 8—* may just be getting too big. Their employees are not familiar enough with website and tools being updated, payroll integration has been a nightmare.
About what was expected—which was a low bar quite honestly
The conversion was about what was expected, the same old, same old. This means we will be looking for a new partner here.
Despite all their best planning, the service post-conversion has been horrible. The staff retained have not been adequately trained or supported with the surviving RK, and important documents necessary for audit have been lost.
Too much "communication" with the client and not enough communication and partnership with advisors and TPAs.
One acquirer messed up the conversion so horribly (financial consequences) that we are now out to bid again. Please note, we were hired on once they were converted from RK 1 to RK 2 (acquiring RK). So this plan sponsor and participants will experience 3 recordkeepers in under 3 years.
"About what was expected"—but not necessarily in the best way.
Pretty smooth so far... and helpful that the same relationship management team is remaining in place.
Impact on the Acquirer?
Of course, acquisitions can also affect service at the acquiring firm(s). So, for readers with recordkeeping relationships on THAT side of the equation, we asked if there had been any impact on service on that end:
38% - There have been rough patches of service "distraction."
38% - Oh, for sure.
16% - A little, but nothing really meaningful.
6% - Not really.
2% - No, if anything additional staffing has been beneficial.
Service has gone down dramatically and noticeable by the plan sponsors and participants. Automation taking over with little-to-no checking facilities in place. Knowledge of relationship managers has dropped dramatically with the pat answer "let me check with someone else on that and get back to you" on simple items that would have been covered in basic training years ago.
How Did You Respond to the News?
The last time a plan sponsor client's recordkeeper got acquired, did you?
34% - Immediately put together/out an RFP to evaluate alternatives.
34% - Waited to see how well things went after conversion.
12% - Didn't see any need to put out an RFP, as I was already familiar with the recordkeeper.
10% - Waited until the conversion planning process started to put out an RFP.
6% - Waited until after the conversion was completed to put out an RFP.
4% - Haven't had a plan sponsor client impacted by acquisition.
We’ll close with some additional reader comments:
I think the trend will continue, and I don't necessarily think it's a bad thing, particularly for the advisory firms with solid relationships at the top. The thing I don't understand is the prevalence of the FinTech providers. I have no clue how these providers are going to scale effectively and still provide high quality service. I have not had a single pleasant experience in dealing with any of the aforementioned recordkeepers, and it seems clients quickly outgrow their platform.
Scale for pricing
Some RK's should just shut their doors... Sometimes acquiring junk costs you more than had you started from scratch!
I don't think my words would be appropriate, so I will refrain from any further comments. Let's just say we are not big fans of consolidation.
Generally, I think the consolidation has been good, but it does make the personnel move around that you are used to supporting your business and that can be tough if it leaves a hole behind.
Traditional consolidation can only continue for so long. We will need to shift our attention to the outsourcing/“partnering” with tech firms to offload some or all recordkeeping responsibilities. Each one of those transactions is different and they are not easily compared to each other—although the traditional in-house recordkeepers say those firms are ALL getting out of the business. We have seen a decline in recordkeeper service significantly post-COVID. It’s difficult to put a finger on, but we believe the negative trend is due to a perfect storm of consolidation, turnover, razor thin margins and plan sponsor desire to offload as much responsibility as possible to their recordkeeper, who is already struggling with staffing and lower pay. Firms that are able to scale and appropriately staff will prevail on service.
There aren’t enough good providers anymore!
Just painful always
I understand that part of the problem is the "race to the bottom" pricing we've been experiencing over the last decade. Proprietary offerings requirements are popping up again more significantly as a way for even the standing "big providers" to maintain profitable / scalable business models. Technology efficiency and competitiveness has also been a factor.
Responsibility and burden to ensure proper process is completed when takeover is done, especially in the under $50 million market, is borne directly on the plan sponsor.
Worrisome overall. The dominance of some is not good.... Bad for fees, proprietary "stuff" they will push, fight for the participant experience/control, end runs around the advisor (but one might say the same thing is going on in the advisory space) ....
Choices are less in terms of who we can use to service our clients. Service has become less personal. Once a plan is sold by the wholesaler, we have been finding that "bells and whistles" we were promised do not get "turned on" and we have been having to advocate for those services.
Thanks to everyone who responded to this week’s NAPA-Net Reader Radar Poll!