Few in the retirement plan industry today question the validity of the convergence of retirement, wealth, and health.
Numerous significant recordkeepers openly admit that it’s their business plan to establish a relationship with their participant base to eventually provide them with wealth management and even financial planning services. Likewise, many retirement plan aggregators have now refocused on acquiring complementary wealth management firms, as have firms originating in the group insurance space.
If integrated correctly, not only will this provide efficiencies to plan sponsors’ HR departments, but it has the potential to provide one resource for all participant employee benefits questions and overall financial needs.
While providing recordkeepers and advisors more top-line revenue to help offset over a decade of fee compression, will these distinct services internally continue to be accounted for as separate siloed business units? One has to only look at other distinct products or services that have earlier been “converged” to see the impact it can have on future pricing models.
For example, let’s look at cable companies. It didn’t take long for them to go on a buying spree to add not only phone but internet services to present the American consumer with a bundled package of digital services at significantly lower bundled pricing – all in a race to gain market share.
This is already happening in the retirement plan industry today. In fact, a large 401(k) recordkeeper has already publicly predicted that its fees would eventually go to zero, yet they are firmly committed to investing in the future of its recordkeeping business.
Why? The opportunity to sell other financial services not only to plan sponsor clients but also to provide a vast array of financial services and products to plan participants.
Given the tightly regulated ERISA space in which we all live, does relationship pricing pose legal issues?
According to Thomas Clark, COO and Partner at The Wagner Law Group, “As long as it’s in the best interest of plan participants, plan sponsors can take advantage of relationship pricing or volume service discounts afforded them by recordkeepers or RPAs (Retirement Plan Advisors). In fact, one could argue that they have a fiduciary duty to examine these opportunities.”
We cannot ignore the need or true value of this evolutionary path that we are on. The American worker desperately needs our help to improve their overall financial well-being. This should afford them opportunities and services currently only available to the affluent and high net worth.
The biggest industry issue this creates, however, is competition. How will independent recordkeepers compete with the national recordkeepers with multiple services to offer plan sponsors and their participants at volume discount prices? How will stand-alone RPAs compete with the menu of services the aggregators can routinely provide not just to large plans but making even small plans attractive to pursue?
Undoubtedly, we will all better understand the motivation for huge recordkeepers and aggregators to increase the number of participants they serve. The convergence and M&A battle in our space will continue.
Brad Arends is Co-Founder and CEO of Albert Lea, Minn.-based intellicents. The views expressed are those of the author and not necessarily those of the American Retirement Association or its affiliates.
