In this column in 2019, I addressed topics ranging from cybersecurity (and the emerging wave of lawsuits), to privacy (with the California Consumer Privacy Act right around the corner), and the impacts of the next Presidential election. A common theme for these topics is that they will continue to be very high profile in 2020.
Similarly, the focus of this column is another topic that is bound to continue moving forward in 2020: consolidation in the retirement services industry.
Last fall, it seemed that not a day went by without news of another merger or acquisition in the retirement services industry. Mergers have affected all corners of the industry – from recordkeeping and third-party administrators, to investment companies, to advisors.
Where this consolidation will lead is yet to be determined. However, as I watch consolidation every day and deal with the business and legal ramifications, there are a number of considerations advisors may want to bear in mind for both their clients and their own businesses.
Client Considerations
With respect to consolidation of other service providers, advisors can help serve their clients well in a number of ways:
- Updated Contractual Documentation and Service Changes. As service providers consolidate, they often decide to retain the contractual paper from one or the other entities or sometimes create a “best of both” replacement for all of their clients. Given the fact that there are regularly changes in these documents from prior practice, advisors can provide significant value in this review.
- Changes to Investment Funds. As investment funds are acquired and consolidate, funds ae evolving in a number of ways – from “blender” funds with multiple service providers to renaming/merging of funds. These changes can come quickly, involve cost changes, and raise questions with plan sponsors. Advisors can help prepare for and bridge that divide.
- Evolution of Products. With consolidation, the services and products available from single vendors continues to expand. Many of these products can be helpful to participants, beneficiaries and plan sponsors. However, with the proliferation of these products, sorting out what is most useful for a client can be a valuable use of an advisor’s time.
- Vendor Search. Inevitably, some mergers and acquisitions will work well with better services, products and efficiency, but others may not. As consolidation occurs, whether for benchmarking or full search, an advisor’s ability to interpret and apply the lessons learned from mergers and acquisitions can be invaluable.
Click here to browse past columns by David Levine.
Considerations for Advisors
For their own businesses, consolidating advisors should think about:
- Disclosure Updates. Consolidating advisors may suddenly have a number of affiliated entities that are (or may soon be) working with their clients. Ensuring that proper disclosures – whether from insurance regulators, FINRA, the SEC or other regulators – are provided is an important post-consolidation step.
- Impact of Cross-selling. As noted above, one often-stated goal of consolidation is to increase the solutions available to clients. However, cross-selling is not without pitfalls. In some cases, cross-selling can trigger prohibited transactions or other regulatory challenges. Furthermore, in an era of lawsuits over data privacy and usage and the rise of the California Consumer Privacy Act, careful review can be beneficial to both a consolidating advisor and their clients.
- Contract Updating. While new contractual paper is likely at some point, early updating can help simplify compliance needs by bringing clients to consistent, current agreement paper.
These are just a few of a basic steps to take when dealing with consolidation. For complex merged organizations, the list can be far longer. An advisor can be a key hub in a consolidation – whether for their clients when others consolidate or when they consolidate themselves.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.
