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READER RADAR: Service (Still) Separates Recordkeepers

Industry Trends and Research

Seems that every excessive fee litigation has at its core the assumption that all recordkeeping services are interchangeable — a “commodity,” if you will. This week we asked readers what they thought.

The question — a simple enough one, of course. But we should perhaps start with a simple definition:  “A commodity is a basic good used in commerce that is interchangeable with other goods of the same type.” Something like milk — or perhaps gasoline?

Well, we could have gone with a simple yes/no/don’t know response — but we know how you appreciate nuance, so we provided a little variety in those option(s):

42% - The type(s) of services may be, but the way they are delivered certainly aren't.

26% - No.

16% - It shouldn't be, but it is.

13% - Yes.

3% - It should be, but it isn't.

For what it’s worth, as there were a few recordkeeper/TPAs who responded, their (filtered) responses weren’t all that dissimilar, though they definitely saw less commoditization in their profession:

49% - The type(s) of services may be, but the way they are delivered certainly aren't.

35% - No.

13% - It shouldn't be, but it is.

4% - Yes.

Now, I’m not quite sure how a judge would rule on differentiating between services and the way they are delivered creating a different level of service — but this week’s responses suggested a clear distinction. Beyond that, and while we tried to provide some nuance — many readers wanted to take their response further. Here’s a sampling:

There is a lot about record keeping that has become commoditized, such as the technology associated with handling payrolls, etc, however, there can still be differentiators in the people and the participant and plan sponsor online interfaces.  I am with a large financial services entity who uses one of the mega plan record keepers and the experience is very basic relative to some of the record keepers who handle small to medium sized plans. Reponses to more technical questions have been varied in ability to respond to the question.

They all perform the same basic function, but that is where the similarities end. There are the obvious differences between a hard dollar base open architecture platforms and your insurance and mutual fund providers. But the primary difference is the organizational commitment to the retirement plan industry. How much they are reinvesting back to their product, the quality of their customer service, product development, thought leadership and so on. You can be working with two different companies that are utilizing the exact same recordkeeping chassis and have two totally different experiences. 

Obviously there are many similarities with RK providers which makes it somewhat commoditized.  However, each provider has their own way to differentiate themselves so, by definition, it's not 100% commoditized.

Each recordkeeper has different capabilities that need to align with the Plans needs and demographic profile of the participants.

I've worked at recordkeepers and I'm currently an advisor. It's more of a mishmash (technical term) than I would have thought in my previous incarnation. There are synergies with other HR functions to consider, and website capabilities across plan sponsor, participant, and advisor needs. They're definitely not all alike. 

Hmmm...  the backbone of the way we do business...the industry maybe a Commodity but we as an industry need to make it the Engine that drives our future...this portion of the industry needs to be where the growth and technology comes from... you'll win on Investment return, but loose on the recordkeeping systems we rely on for the day to day participant operations.

Every recordkeeper is looking the same and wants to monetize the participant since no one can make money on recordkeeping without huge scale.

There’s a distinct difference in providers and the potential for significant impact, both positive (improved outcomes for participants) and negative (errors in administration) that separate providers.

The divergence and services provided between the larger providers seems to be widening.

The root purpose of recordkeeping is a commodity, but technology, service, education, and experience much different.

The "core" recordkeeping services relating to investment choices, participant statements and website access are commodities. The add-ons that each recordkeeper has or does not have is the way they attempt to not be commoditized. These include financial wellness tools, financial planning calculators, video education, etc. The value of an add-on can justify a higher cost due to a generally subjective determination of value. It also allows for being able to tailor the service and support levels to various participant demographic needs that may otherwise have to be provided by the advisor.

It depends. The high quality recordkeeping services are, however the ones with poor service and lackluster relationship managers are not.

The online RKs are pushing a more "commoditized" product. There isn't really much flexibility there.    

There can be exceptions, but for the most part, for most plans, core services are pretty much the same.  Pricing with proprietary products can make a difference.  One thing that can be different is that different recordkeepers use different pricing models.  For example, average account balance means more to some recordkeepers whereas another might view cash flow as more important.  That boils down to a pricing issue which doesn't necessarily equate to a difference in services.

The basic function of recordkeeping may be a commodity, but things like method of delivery (server, cloud, 3rd party, etc.) service team, compliance etc. begin to change its value and perception.

So many different levels of service and websites

For the most part, yes, recordkeeping is a commodity.

Unfortunately with consolidation within the industry and the race to zero, this is the unintended consequences.

Clients expect core record keeping tenets....accuracy, prompt processing, trade functionality, etc.

Basic record keeping is but many vendors more sophisticated platforms and provide participants with more helpful information. That should go into the fee equation.

Not all recordkeepers offer the same funds or fund families.  Also, some are better and easier to work with than others.

It used to be - but there are so many variations on service now.

It's not a "one size fits all" world out there nor should it be. Different plan sponsors have different plan needs depending on demographic, location, type of business, etc.  A "commodity" strikes me as something that's basically  the same for everyone. If that's how someone is approaching their practice, are they delivering what's best for their client?

Many of the individual services are commodities, but how they are packaged and delivered is.  The real value may well be how the client can use them.

it not quite there but fast approaching.  Financial wellness is the key driver to differential in record keepers.  Service also continues to be of importance.

We have our favorite RKs and essentially they all do the same thing but the relationships with VPs/wholesalers/conversion teams etc. are the differentiators.

Yes...always trying to move our pricing down...but when we get bad data from clients then it's our responsibility to correct it (and not charge)!

The actual function is a commodity, but the level of customer service and attention varies and makes the difference.

The basic recordkeeping services have become a commodity, but I think the recordkeeper can separate themselves through the 'extra' things they do.

The “product” side is a commodity, the investment options part of it. Those are like eggs and milk. The service side is far from a commodity. The service provider sets themselves apart from the crowd with dedicated and named individuals as contact people. Ask anyone who works with a recordkeeper who doesn’t assign named people - ask them if there is a difference?

Service is never a commodity.

Although the core / basic services may be the same, the level of expertise, competence, care and attention is vastly different.

It's become a commodity with very little differentiating one recordkeeper from another. Beginning in 2013 we've been saying it's a race to the bottom for fees for recordkeepers with consulting firms benchmarking every 1-3 years and almost demanding a fee reduction or threat to rfp...which ironically is ridiculously expensive for recordkeepers and should be driving up the cost.

I have found that the better record-keepers all offer most of the same services in both number and quality. But many of them are horrible.

Feels like the ones who treat recordkeeping as a commodity are the ones that understand recordkeeping the least.

The DOL and IRS write the rule book... everyone else is just following the rules and interpreting them in their own way as best they can.

There is a very wide range in quality of the services provided.

The RK’s add additional services to separate themselves but in the end, most large advisory firms have the same services and tools for the participants.

The aggregation of the recordkeepers is the story of commoditization in our industry rather than the aggregation of advisors. 

Most Plan Sponsors are so price sensitive that they tend to go with the lowest cost item.  I'm not sure either the advisor and/or the TPAs good a good job detailing their competitive advantages and services. 

Because of the data gathered, a strong one can greatly assist a participant to their retirement goals. As long as the RK is continually investing in its services.

Participant websites- yes. Employer website and services offered- no  Advisor website and services offered- no.

Some recordkeepers do it themselves while others outsource to 3rd parties. That makes a huge difference in quality, accountability, and delivery!

Transactions are only a small fraction of recordkeeping.

Recordkeeping is typically bundled with other services for retirement plans, so even if pure "recordkeeping" were a commodity, the other services almost always bundled in vary substantially.

Recordkeepers that focus on their core markets and where "they have a right to win" can create leverage and value in their chosen markets.  Scale, efficient workflow and tech enablement while limiting exception processing can help loosen up margins in a price sensitive business.  The focus on scale in a tight margin business adds pressure to delivering good service particularly down market.  Recordkeepers that have the basic building blocks (the commodities - website, apps, wellness tools etc) can balance maintaining the human element in tech enabled retirement plan delivery creating more value while maintaining top quartile pricing.  This takes discipline.  The largest key to unlocking value is providing a more comprehensive suite of financial products and services on the customer continuum.  These offerings must be meaningful across all age, risk and demographic components allowing participants to save, invest, protect and ultimately retire.  Stronger diversity of product and service creates diverse revenue streams, better persistency of business and greater LTV - lifetime value of customers.  Recordkeepers that are not partnering, buying or building these additional products - serving as an outlet for individual, financial wellness, literacy and management - in a widely underserved market (mass affluent/main street) will become a commodity or priced out of the market if not already.  Finally, some proprietary product (general account, managed accounts, etc.) is necessary to augment fixed recordkeeping fees.  It is very difficult to survive and thrive simply as a "pure recordkeeper" - as evidenced by the consolidation (M&A) thesis that remains today.  Add in public sector, state retirement offerings that are trying to avoid ERISA pre-emption and an even playing field with private sector counterparts and it makes you wonder how you can gain more leverage to compete in the future as a "recordkeeper".

The differentiator is the quality of the team - the relationship manager and the internal client associates.

It’s mostly commoditized, sone definitely deliver better service than others. Price doesn’t win, but it definitely loses fit outlier higher prices vendors.

Parts of Recordkeeping are a commodity, such as processing a Hardship Withdrawal.  BUT, if you examine ALL that encompasses Recordkeeping, there are stark differences in plan sponsor and participant services.  In fact, the Recordkeeper is responsible for almost all participant communications.  Or, some Recordkeepers have 250+ branches where an employee with a concern can walk in and talk to a "live body".

Quote: “we are in a highly regulated, very technical, litigious (SERVICE) industry, that needs to be 100% correct all the time… opposite of commodity!” Patrick Shelton  

yes/no answer... Just like accounting, crm, sales, marketing Apps are commodity like...All are foundationally the same, they are all usually different in sooo many ways: cost , performance, personalization, domain specific, ux, cx ...

Not all record keeping platforms are equal or offer the same array of services, quality, pricing options, personell etc. Its is not like a gallon of gas that is the same if you get from the Chevron or Shell station. However if the Shell station is cleaner and sells my favorite coffee then it isn't either.

I think many plan sponsors see the recordkeeping function as a commodity, but as an advisor I don't think it is.  Various recordkeepers excel in some areas and fall woefully short in others and vice-versa. 

The actual tracking of deferrals/contributions and assets is automated and likely a commodity since many RK'ers use the same software (e.g., as I understand it there are 5 or less major software companies that right the backbone for many recordkeeper while some do have homegrown systems.  The actual delivery of the service and provide participants tools to help make savings and retirement decisions is not a commodity.

Five firms control what? like 90% market share.

If the Plan sponsor and the record keeper assume that nothing will ever go wrong, that everything will happen with ease, that there will never be an error, that the people in the overworked, understaffed, and under skilled payroll department know what they are doing, then they can make the case that the record keeper can have a low level of service and it won't matter.  So if a smooth running of the Plan can happen with no effort by a recordkeeper, then it can all be run by robots and it is then a commodity.

Some record keepers , particularly those who offer annuities(regardless if it’s an individual or group annuity) built a mousetrap that other recordkeepers can’t handle. Therefore it leaves a plan sponsor limited options when attempting to consolidate recordkeepers.

The core recordkeeping services are certainly a commodity. Recordkeepers can differentiate their offerings based on the ancillary services that are provided. In the end recordkeeping is a scale business that is driven by technology. If a recordkeeper has something unique as part of their offer, it will usually have a six month lead time from its competitors. Overall, recordkeeping is about delivering a service that is faster, better, cheaper to the client.

Definitely not a commodity.  While most all record-keepers provide the same functions, HOW they provide them and the way they are delivered makes all the difference.  For this reason, its extremely important to sort through the myriad of recordkeepers and find the ones with superior service models. Your plan sponsor clients will thank you and so will your future self!

The industry providers have driven their "high-touch" service model to one that now focuses on performing a set of tasks. This is what has been driving commoditization and a move away from the "high-touch" model that used to exist. Only a couple of providers now scrub data, all of the big firms have migrated, as mentioned above, to a task-driven service model, but the tasks are not a complete solution.

With the caveat that some recordkeepers will take on messy plans while others will only quote on certain types of plans as long as they meet certain qualifications.

Why/Why Not?

And while we got some of that in the responses above, we asked readers to share their rationale behind their response:

The functionality can be considered a commodity (I don't consider it as one) but the service (for those providers who invest in that) is not. 

While Recordkeeping is truly a commodity, how it’s delivered is the difference between an average Recordkeeper and a great Recordkeeper.  The delivery of such services and follow-up is the key between average and great Recordkeepers.

We are seeing mergers that are lowering the number of providers and affecting service in a negative way!

Obviously there are many similarities with RK providers which makes it somewhat commoditized.  However, each provider has their own way to differentiate themselves so, by definition, it's not 100% commoditized.

A recordkeeper's approach can be active or re-active.  The active ones that keep the Advisor in the loop with the ongoing needs and fiduciary duties of the Plan Sponsor will always be preferred.

If you really understand what they do, there is a lot of differentiation with the various options.

When you find a good recordkeeper, there's nothing better.

There are certain commonalities but different RK's are setup to deliver different service models.  Some RK's work really well with standard plan designs while others handle more complex plan designs.

Most recordkeeping systems all offer the same functionality.

Different providers have different services within.

The level and quality of service can differ vastly from one to another.

Synergies and economies of scale.

Commodity implies no differences. There are meaningful difference in price and experience.

I think the way a plan is set up should be tailored to the needs of the Plan Sponsor and their employees. Depending on the needs of the PS, the plan may demand more service and resources. Other plans may be much simpler to manage and require less attention.

Fees get a lot of attention, but service, relationship manager skills and support, platform and various program rt features, niche areas of specialization and expertise, etc. are all important. Cost may seem to be king, until service falls short of expectations.

Again, it's a basic commodity at its core but so is orange juice, milk and pork belly. It's when you alter it in order to fit a specific need of the consumer or community that it becomes a tool, resource, necessity, etc. More focus on matching the basic and unique needs of the plan sponsor, participants and their beneficiaries to the recordkeeping solution and its added services needs to be a primary focus. I have been on all sides of the discussion (Advisor, Recordkeeper, DCIO), and see nothing more than a circular firing squad. The best Advisors, know their client and the needs of their human capital (participants), and take the time to study and know the commodities (recordkeeping, investments, etc) well enough to aid the plan sponsor in making the best possible decision for their company, human capital (which they are too), and community. 

See above

There are elements that surround RK that differentiate vendors such as ability to toggle between multiple plans, presentation and functionality of gains/losses, presentation of guaranteed monthly return, etc.   That differentiation, depending on the cost, is what can differentiate RK's -but at the end of the day, cost is the single most important factor to plan sponsors, which in my opinion, make it a commodity.

As an advisor/consultant, we are hopeful that the client identifies the relationship as ours and the recordkeeper is merely a tool or resource to deliver the employee benefits. 

Basic recordkeeping is a commodity. Everyone should provide accurate record keeping, transaction processing, trading, etc. The client experience in how to effect the transactions may be different ie website, mobile app, client call center, payroll processing, speed of transaction processing.

basic rk is the commodity. however, each rk seems to offer their own level of service which distinguishes it. * won't provide RMD calculation for a 72 year old. I believe this is a basic service that all rk should calculate if they have the data. Other rk providers have their own quirks....that you often don't unwrap them until you need that service and discover the rk doesn't do it. rk is not yet a commodity, but it is fast becoming one.

It is evolving and incredibly difficult to power the nuance efficiently.  It's a deep, multi-layered complex problem that RK's solve.  The cumbersome, error-prone processes behind the legacy providers drive the cost to serve up, with a lackluster user experience and ultimately inhibit adoption from closing the critical savings gap.

Service Variation

While the "recordkeeping" is more or less a commodity, how it's delivered is definitely not. I have a larger RK in mind that on the surface looks like it delivers a Tesla to every single client. Yet in reality, it's a nightmare for my small businesses even though the "chassis" is basically the same. In some cases bigger, better and more sophisticated isn't what's needed.    The gap is even bigger when it drills down to participants. I can't expect employees who don't regularly access or even have access to a computer to be forced to know about their retirement plan through everything online. One client of mine successfully moved all HR functions to their payroll provider app, including enrolling in the plan. Participation has increased and hardly no one is even using the RK tools. Yet, many more are successfully saving for retirement now than before when everything was RK driven.   

Some recordkeepers can quickly correct issues on an "as of" basis whether it be amounts misapplied to participant accounts or items posted to incorrect source codes.  Some vendors do not easily handle those transactions or rely on the TPA or Plan Sponsor to dictate how such corrections are made.

19 years of RP experience. Some as the representative of a recordkeeper, some as an advisor.

The level of investment in technology is usually a dividing line for recordkeepers, but equally important are the client service associates dealing with the day to day operation. 

Pricing compression is the key reason it’s becoming a commodity.

We've had some bad experiences with bundled plans. We prefer to use a TPA on any plan that is not cookie cutter.

Pricing, Tools, Investment offerings are very similar. Service is a key differentiator.

Advisors need to think about they charge 50 bps to "service" a plan...but only want us to charge 20 bps for they understand ALL the work that we do EVERY day??????????

Gas is a commodity, but not all gas stations offer the same ux: price.

Service has been lacking since people started working from home, recordkeepers could become less of a commodity and more distinctive by having stand out service, integrations, seamless admin, and latest tech.

The actual record keeping and administration services are the same across all record keepers. The level of customer service can be different and dependent on the people in the service positions.

Each Recordkeeper provides different services in their 'base fee'.  They all have different ways that they handle the day-to-day administration of the plans, service model, compliance, etc. 

Product” is a commodity, the investment options part of it. Those are like eggs and milk. The service side is far from a commodity. The service provider sets themselves apart from the crowd with dedicated and named individuals as contact people. Ask anyone who works with a recordkeeper who doesn’t assign dedicated/named people, and they’ll attest.

While so much of recordkeeping has become automated through technology, when we need a human and we need service, we need it. Those periods of time can make or break a plan and no amount of technology can solve for that.

See above.  Another vastly concerning issue is that "recordkeeping" and the act of hiring a "recordkeeper" continues to morph into a financial supermarket where the "recordkeeper" is now your friendly "financial wellness product purveyor" including but not limited to the sales of HSA product, insurance product, annuities... all masquerading as "assistance".  I continue to be deeply concerned.

The service and support that is offered is what separates them and keeps it from being a commodity.

The recent banks that collapsed showed why it is very important to know where you are placing your trust.  All of the VC start ups / M&A activity should concern advisors about placing their trust in retirement recordkeepers that will not be here next year.

There some extremely good r/k providers - some better than others.  Overall, they are quality services delivered by quality people.  There are differences and trying to better understand the capabilities are difficult.

While the basic processing of transactions such as payroll, loans and distributions seems like a commodity, there is a lot more nuance in this business such as a recordkeeper’s technology and ability to seamlessly support more complexity when necessary. Some recordkeepers perform outside the box MUCH better than others that have a hard time even doing the basics well.

Clients are looking for low cost, but focus should be on service.

The narrow aspect of true "recordkeeping" is a commodity, but the reality is we use the term "recordkeeping" to encompass all the products and services provided by a recordkeeper, which go far beyond keeping records.  While recordkeepers may provide similar kinds of products and services, there is actually much differentiation when you get to the weeds - where it matters.

The basics - i.e. plan testing, plan document, plan sponsor/participant website at it's core are.  But the experience, service level and resources are not.  That is where we focus our efforts when working with clients on RK RFPS.    Years ago, RFP questionnaires were loaded with participant website and service center questions (what are you service center hours?  Can you do spot transfers on participant website?  Do you have paperless loans?  I no longer ask any of those questions.  It's all about the service team, # of clients, dedicated or team model, etc.

The top tire RKs have the means to invest in their systems and service models to make a significant impact on outcomes. At a very low fee. Often the RK fee is significantly less than other service providers in the mix.

Some rk allow access to a lot more information to dive deep into plan data while others don’t.

Some recordkeepers do it themselves while others outsource to 3rd parties. That makes a huge difference in quality, accountability, and delivery!

The perception of the client is that they are.

How a recordkeeper structures their service model and interacts with plan sponsors is vastly different between recordkeepers. Plan design plays an important role in the type of service a recordkeeper should provide.

Like any (most) product or service, there are variations in makeup and quality, consistency and ancillary components. There is inherent value in a higher level of these factors.

Don't be a commodity: There are still inefficient and less traveled parts of the retirement system that are more difficult to commoditize. Examples such as MEP/PEP, small market ERISA 403(b) and governmental (457(b)/414(h) are stand outs as possible green fields or strengths to develop for providers in these areas.  Individual 403(b) is ripe for disruption as one of the last markets that haven't hit the efficient frontier.  I've had many specialist advisers tell me, "don't tell me you are good at everything, tell me where you are particularly great and focused". 

It is still an important function that if done improperly can cause a lot of compliance problems and could be costly for the plan. 

It is not what you do; it’s how you do it that makes a difference. I work for a Record-Keeper who is in the business of transforming people into leaders at its core so our employees can become better teammates, parents and contributors to society. Record Keeping is simply the output that allows us to create leaders and deliver a different experience to our clients. One where we build the relationship while completing the task.

They have all priced themselves into a corner.

Decision makers and influencers look at price without the deliverables.

Advisors have trained and allowed plan sponsors to select the cheapest provider even thought it may not be the best provider for the job. High touch, high skill service and recordkeeper value adds are considered matter less than price when nothing could be further from the truth. 

Some RKs don’t have scale or funding to invest in regulatory necessities and expanded improvements. 

Is everyone participating? No  Is everyone contributing the right amount/maximizing the match? No  Is everyone invested properly? No  Does everyone preserve their account balances when changing jobs? No  Does everyone have a custom goal and are they on track to achieve that goa? No     Until the above are answered yes, it would be very difficult to state Recordkeeping is a commodity.

401k apps should be commodity based.. but differentiators will be presentation, add on  services, personalization...

I think many plan sponsors see the recordkeeping function as a commodity, but as an advisor I don't think it is.  Various recordkeepers excel in some areas and fall woefully short in others and vice-versa.  Firms like **, **, etc. have invested the capital to develop robust plan sponsor websites (and participants) while others are simply horrible by comparison.  Some recordkeepers respond quickly to inquiries while others seem to think its reasonable to follow up within a few days to a week (a few TPA's come to mind).  

The pain points of "recordkeeping" often have very little to do with "recordkeeping". Recordkeepers differentiate themselves by the direction they provide and expertise they impart. Staffing challenges and fee contraction are making it more difficult for the services providers to be effective.

My experience has been that the level of excellence and service one receives from different recordkeepers varies greatly.  And just because a recordkeeper has a high profile name in the finance world definitely does not always mean their recordkeeping and service matches their reputation.

The websites have different degrees of "easy useability" on the participant, plan sponsor, advisor and TPA fronts.  As a TPA, I find the "award-winning participant website!" recordkeepers have given absolutely no thought to what a TPA would like to be able to find/download on their site.  I'm wondering just who gave them the participant award.  Perhaps they gave it to themselves?  Also, some recordkeepers offer an outside brokerage option that reflects on their participant statements, though others do not.  So not even all services are the same. 

Features arms race over the last twenty years has resulted in high service levels, lowered costs, and real benefits in account access and control.  Still some room for the top dozen firms, and national administrators.

If everything works perfectly every payday, and with every distribution, and every loan, and every dividend posting, then robots can run the record keeping system. However, that's not reality.  Stuff breaks. Trades break. There are human errors. Support is needed. Conversions can be very hard.  The software tools are horrible in many situations. Luckily, since the IRS doesn't seem to audit anyone anymore, all of the errors can be never resolved with no harm to the record keeper or the plan sponsor.

Each company is unique in the services delivered and range of options even though the underlying backbone may be very similar to others.

Participant portal experience can vary wildly. Fund offerings between recordkeepers (and their affiliated b/d) can vary pretty significantly.

See response above.    One particular consulting firm promotes the "value" a recordkeeper offers, however, this is very subjective and difficult to substantiate since outside of the technology portion, so much of the offering is contingent on the service delivery by the client team.

LOTS to chew on here, folks! Thanks to everyone who participated in this week’s NAPA-Net Reader Radar poll! 

Hope to see many/all of you at the NAPA 401(k) Summit next week – be sure to say “howdy!”