As consolidation in the retirement plan adviser space
continues to heat up, financial advisers who have carved out a niche pairing retirement plan sponsors with plan providers could begin to see radically altered business dynamics.
During a recent
InvestmentNews roundtable discussion with executives at some of the largest retirement plan advisory firms, it quickly became evident that consolidation is top of mind at most firms.
"Recruiting retirement plan advisers has never been easier," said Geoff White, chief executive at GRP Financial, which oversees $72 billion through 275 affiliated advisers.
Mr. White and other aggregators in this space believe that independent retirement plan advisers are losing their competitive edge to larger, more sophisticated and tech-savvy providers that offer the services that plan sponsors are increasingly seeking.
"You have to have scale to be able to compete," Mr. White said.
For the hundreds of smaller independent retirement plan advisers, there's mounting pressure to join larger operations as the benefits of scale become ever more important.
Multibillion dollar behemoths
In addition to competing against such multibillion-dollar retirement plan behemoths such as GRP, Captrust, SageView Advisory Group, NFP and Lockton Financial Retirement Services, independent advisers are starting to see
competition from plan providers and record keepers that are beefing up their own consulting services, which potentially could cut out the retirement plan adviser.
According to a new report from Cerulli Associates, financial wellness programs have emerged as an area of strategic focus by record keepers.
Looking past the ambiguous nature of the term "financial wellness," Cerulli said the movement by record keepers emphasizes holistic advice and goes beyond a plan participant's workplace retirement savings account.
Mr. White said the financial wellness programs being rolled out represent direct competition for retirement plan advisers, also known as plan consultants.
"As margins become more compressed for the plan providers, they're looking for new ways to generate revenue," he said. "That means consultants need better data and technology and services to compete against plan providers."
Pressure to gain scale and sophistication is also coming from individual plan sponsors, who have become more familiar with fiduciary standards thanks to the multiyear debate on the subject, said Jeff Cullen, managing director at Strategic Retirement Partners, which has nearly $12 billion in retirement plan assets.
"We've never had it easier to recruit, because for the first time in the history of our industry, because of the DOL rule that never really happened, we have an educated buyer," Mr. Cullen said. "They're not going to buy from a one-person shop or two-person shop, because if they're a plan of any size they want to see that you have the people, processes, and technology in place to support their plan and their participants."
Different 'ponds'
Captrust managing director Rick Shoff responded, "I think it depends on what kind of pond you fish in," pointing out that different aggregator models have different ways of gaining scale.
The good news for retirement plan advisers is that there is a hungry corral of aggregators looking to bring them on board, assuming they qualify.
At Captrust, for example, which leads the market with more than $200 billion of mostly retirement plan assets, the target acquisition range starts at $2 million in annual revenues, or about $2 billion in retirement plan assets.
Few meet criteria
Mr. Shoff estimated there are fewer than 100 independent retirement plan advisers that meet that criteria.
This highlights the difference between an aggregator like Captrust that hires advisers and acquires firms, and an aggregator like GRP that recruits advisers to pay for access to its platform and services while technically leaving the advisers independent.
"Firms can say it's never been easier to recruit because they're not actually doing an acquisition," Mr. Shoff said. "It's like the difference between asking somebody to date you and asking somebody to marry you. As a model where we're asking people to get married, it's not harder but there are fewer firms prepared to have that conversation."
Whether recruiting a retirement plan adviser to give up a portion of the payout to join a platform or bringing an advisory firm formally into the fold through an acquisition, it is all being driven by the need for scale and a diversified revenue stream.
"This space is known for having very low fees and similarly low margins, and the only way to overcome that is via scale, technology and artificial intelligence solutions," said Daniel Seivert, chief executive at investment bank Echelon Partners. "If you specialize and have the scale it can be a pretty good business, but it's not going to be as good as the traditional RIA business."
