The frenzy of recent 401k firm acquisitions was a hot topic at GRPAA’s Finnovation Conference in San Diego on Saturday.
Many principals of acquired (and acquiring) firms were in attendance, dispensing advice on everything from appropriate multiples to the sale’s effect on their employees and families—which are often one and the same.
In November 2018, Newport Group announced it had purchased the stock of TPA Kidder Benefits Consultants.
Kidder is experienced in all types of plans—including 401k, defined benefit, cash balance and ESOPs—and provides IRS and Department of Labor resolution services and fiduciary governance on behalf of plan sponsors.
“The consolidation of the industry, in all aspects, is a good thing because it keeps you on your toes,” Keith Gredys, the firm’s founder and former chairman and CEO (who still retains the title with Kidder Advisers) said during a conference break. “I’ve always been one to try to help project where the industry is going to be in the next three to five years and prepare yourself for that.”
Strategic growth
For Gredys, the decision to sell, therefore, wasn’t simply financial; it also had strategic positioning implications on the advisory and consulting side, “where everything’s going from financial wellness to plan design to consolidation to pricing pressures to robo.”
And a big part now—believe it or not—involves market performance.
“A lot of the business we deal with and work on is based on assets, especially in the micro and small plan market. You’re in a situation where the market makes adjustments, so how do you handle that from a business perspective? Part of it is being financially sound as an organization, and invest in the right types of technology so you can position yourself going forward.”
Talk of a market top and the multiples currently seen naturally led to a discussion of the timing of a sale, and if the proverbial clock is ticking both from an economic standpoint, as well as political, as the next election (and the uncertainty it brings) is fast approaching.
“With the amount of money being thrown about and the pricing, that’s definitely something to think about in the TPA market, meaning where the numbers are there when you’re selling,” before adding. “We said, ‘Okay, we’re never going to see that number again.’ If it goes higher, it goes higher. Don’t get greedy.”
But how, specifically, did it fit with the strategic growth plans for the company?
“It made sense on the TPA side because of price compression, technology and a lot of other things talked about here at the conference, like needing more scale,” Gredys explained. “On the advisory side, especially in the micro and small plan market, it will help us provide services to that business owner beyond just investment fiduciary. It’s looking at the participants, spending more time on financial wellness, accumulating more assets or integrating more benefits for them.”
That takes brainpower, he concluded, and the right type of people.
“But it becomes more than just a trusted advisor saying, “Oh, I can be your 3(21) or 3(38) fiduciary,” we want to go beyond that to business and strategic planning in the micro and small plan market. This will help us do it.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
