Retirement plan adviser M&A stays hot with OneDigital deal for Resources

In a megadeal sure to change the retirement plan industry, OneDigital, a national benefits broker, acquired Resources Investment Advisors and 13 related practices. The deal, which was announced Tuesday, was advised by Wise Rhino Group. Terms were not disclosed.

The acquisition includes Bukaty Financial, whose leader Vince Morris founded the RIA in 2010 after LPL's acquisition of National Retirement Partners, and other well-known firms, many already affiliated with Resources. They include Cafaro Greenleaf; Chepenik Financial; 401k Advisors Intermountain, led by Corby and Brady Dall; Strategic Retirement Group, led by David Hinderstein; SHA Retirement Group, led by Kelley Snook and David Anderson; and the San Diego and Irvine offices of RBG.

All told, the acquisition includes $45 billion in assets under administration among 2,600 plans, along with the RIA and related tools and services. OneDigital, which has completed about 80 acquisitions since its founding in 2000, is focused primarily on benefits and health care. It has 2,000 employees and serves about 50,000 employer clients

The retirement plan adviser market is mostly still a cottage industry, with many small firms serving defined-contribution plans ranging in size from $3 million to $500 million. Captrust and SageView, along with NFP and NRP, began aggregating these firms in the early 2000s, either as affiliates or through acquisitions. Today there are almost 20 so-called aggregators, including the new breed of private equity-backed benefits firms like OneDigital and Hub that are betting on the convergence of health, wealth and retirement.

The RPA market, ripe for consolidation, is still scattered. It includes:

•   2,500 elite plan advisers with more than $250 million in AUA or AUM, or $750,000 in DC revenue.

•   25,000 retirement plan advisers with 10 or more plans.

•   More than 100,000 registered investment advisers with at least one plan.

So what’s driving benefits firms and their PE backers to pay attention to the DC market, which has a reputation for providing low margins and high liability? And why are advisers and larger advisory practices coming to market?

“Employers have been asking for the integration of health and retirement for years,” OneDigital co-founder Mike Sullivan said. “But the industry has been given a pass. We will need to step up and deliver integrated services, which requires technology, people and capital.”

At a macro level, the convergence of health, wealth and retirement seems likely. In that capacity, RPAs can mine more revenue from clients as they have a significant competitive edge over “Triple F” advisers, who are focused on fees, funds and fiduciary services. Helping employees, especially those overlooked by traditional wealth managers, is becoming a priority for employers and, consequently, advisers serving retirement plans.

And of course, money matters. RPA valuations are at an all-time high, and there’s a lot of PE money on the sidelines that needs to be deployed. Acquisition of benefit and wealth managers will come later, but the consolidation of RPAs is just the beginning.

What does this mean for RPAs, especially those that remain independent? RPAs owned by or affiliated with a DC aggregator get access to leading tools and services and enjoy leverage with record keepers and money managers. Acquired firms that are aligned with benefit practices like Resources and OneDigital will have greater cross-selling opportunities. Independent and wirehouse RPAs will not go out of business, but their growth and profitability will be challenged as advisory fees continue to decline and plan sponsors become more sophisticated buyers.

It’s going to take integrated technology and people-fueled capital to access and serve the more than 90 million participants on DC platforms. Open multiple-employer plans, or pooled-employer plans, offer huge opportunities. But only larger national firms with sophisticated sales and marketing capabilities, as well as technology, fiduciary, legal and administrative expertise will be able to fully take advantage.

“How much further can we grow without capital?” said Bukaty's Mr. Morris, who will become president of OneDigital’s retirement practice, reporting to CEO Adam Bruckman. “We needed capital to continue our growth and innovation.”

There’s still a dire need for aggregators and elite RPAs to create a brand for midsize and smaller plan sponsors, which are just starting to realize the importance of an adviser and the wide range of services available. Even the largest storied firms have minimal brand recognition in that market segment.

When plan sponsors realize the difference in quality, resources and outcomes among retirement plan advisory practices, experienced RPAs will be able to truly use their advantages, and aggregating firms will be able to realize a greater return on investment.

[More: Why retirement plan adviser RFPs are critical to participant success]

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews‘​Retirement Plan Adviser newsletter.