Skip to main content

You are here


The Tidal Wave is Heading Your Way… Are You Ready to Ride it?

“What tidal wave?” you ask…? The data is telling us that the wave of consolidation that has taken hold in other parts of the retirement business is rapidly heading towards the retirement plan consultant world.  Consider the following:

  • The seven largest traditional consulting firms and their 35 smaller national, regional and boutique counterparts now advise to approximately $3.1 trillion and $850 billion in DC assets under advisement, respectively. This represents over 50% of the $7 trillion DC space (see chart).

  • National Insurance firms that had been focused on the property & casualty, health insurance and life insurance verticals are now actively pushing into the retirement plan consultant space and creating significantly larger and more scaled entities (see chart).

  • Private equity (PE) firms are knocking on our door. They have spent the last handful of years rolling up RIAs and wealth managers, and are now looking for the green field of retirement plan advisors (and their plan participants) as the next “cottage industry” to aggregate, scale and professionalize.

Let us not forget the pressures that each of you is facing to not only grow your practice, but simply to sustain current profitably levels. Nothing you haven’t heard others talk about, but you’re facing fee compression, plan sponsors demanding more services, increased competition from scaled aggregators and an increased push to deliver participant level services via an “Amazon-like” experience.  The majority of practices are going to be challenged to meet and/or exceed their clients’ expectations over the next 2-5 years without significant capital investment and skilled resources behind them, if they want to compete and win versus the larger, more scaled entities that are forming today.

So, what should retirement plan practitioners do? A good start would be to recognize that what got you here probably won’t get you there. What advisor firms will be facing is exactly what the smaller consulting firms faced through the years during the first consolidation wave. The firms then that recognized and embraced the realities of consolidation and evolved were the early winners, striking the best deals with the best firms that ensured their place as "the steamroller rather than the road.”

Let’s not paint too bleak a picture of the future; you have options, regardless of the size of your practice, but the time is now to start thinking through them. Begin by practicing what you preach to your own clients. Prepare. This begins with a deep understanding of your own practice relative to this changing environment. What should follow is getting a thorough understanding of each of the viable growth-through-partnership options available in the marketplace. The right questions are: Am I better off going it alone? Do I merge or bring on capital and expand? Do I buy into a larger firm?

In terms of understanding the growth-through-partnership options, firms are aggregating in different forms at the top of the advisor intermediary segment. This includes large RIAs, insurance brokerage firms, regional elite firms and platform/affiliations, as well as emerging PE-backed enterprises that potentially overlap the entire segment.

Even if you end up doing nothing now, understanding the various partnership options available in the marketplace will, at a minimum, inform leaders how to best build the business going forward to thrive and maximize enterprise value.

As the consolidation of consulting firms, recordkeepers and broker-dealers proved, the challenges of change can turn firm strategies upside down, weaken the strong and destroy the ill-prepared. Or they can represent a once-in-a-generation opportunity. Retirement advisor firm leaders will need to conceive of business models that will be competitive, profitable and sustainable for the long run. Firms will need to be bigger and be managed more professionally. And most importantly, they must evolve from practices to businesses.

Those who recognize the most impactful growth through partnership opportunities early and act on them will be best positioned to thrive.

Adam Sokolic is a Partner at Wise Rhino Group