Record-keeper consolidation has been active for years, with shrinking margins and economies of scale serving as driving forces behind the trend.
All else equal, plan sponsors don’t like to change providers. The vast-majority assist in the plan sponsor role as a side responsibility relative to their primary jobs, and service provider transitions can create significant work and be painful to implement.
However, increasing visibility into lawsuit activity and regulatory scrutiny are creating a greater awareness of fiduciary responsibilities and specific scenarios that warrant changes.
Some firms are responding to the impact of consolidation, as well as this greater awareness of fiduciary responsibilities, with new solutions.
Vestwell launched a retirement platform in 2016 with a stated focus on low-fees, transparency, and compliance.
While known for their leverage of technology, they also emphasize the role of advisors’ ‘human touch’ in delivering retirement plan solutions. Vestwell has been as aggressive with integration partnerships as anyone we’ve seen in a while; announcing relationships with Fiserv, Riskalyze, Morningstar Investment Management, Namely, Allianz, and Dimensional Fund Advisors since going live.
With much less fan-fare, FT(k), an affiliate of First Trust Portfolios, entered into an arrangement with EPIC Retirement Plan Services to promote a 401k offering which leverages EPIC’s record-keeping technology that launched earlier this year.
FT(k) highlights fee transparency, open architecture, and optional fiduciary services in their solution’s summary documents. They also note access to customized data feeds for home office oversight, an area of increasing importance to the broker-dealers with whom we speak.
FT(k) appears to be targeting service of some ‘quirks and complexities’ that we’ve heard several broker-dealers want addressed by their service providers.
Both examples share several characteristics, including fee transparency, open-architecture, and focus on financial intermediary enablement.
Each of those characteristics can help mitigate the three primary causes of 401k lawsuits: inappropriate investment options, excessive fees, and self-dealing, according to the Boston College Center for Retirement Research.
As we move towards a more fiduciary-centric world, the bar for service provider selection will be raised. While we haven’t yet seen broker-dealers restricting recordkeeping platforms, we have heard some introduce the concept of a ‘preferred list.’
We expect to see advisors and broker-dealers gravitate to those providers who help them mitigate their fiduciary liabilities and win new business.
Some legacy providers are adapting to survive, and thrive, relative to those stuck in the past. Some new entrants, like Vestwell and FT(k), are emerging with models specifically engineered for today’s environment.
In the face of consolidation, this innovation is positive for the retirement market.
John Faustino, AIF, is Chief Product and Strategy Officer with Pittsburgh-based Fi360.
John Faustino, AIF, is Chief Product and Strategy Officer with Pittsburgh-based Fi360.
