Aggregation–in any number of flavors–is growing in the retirement space, and with good reason. The economics and scalability it affords enables firms to compete in a shrinking margin environment. Beyond the numbers, aggregation offers advisors many benefits including expanded bandwidth to create more innovative programs, a greater voice with investment companies, better use of non-traditional programs like financial wellness, and preferred pricing for a variety of programs and services. Individual advisors working together are finding the same benefits, creating scale that not only increases their overall value proposition, but also positions them to compete with nationwide consulting firms who work with the largest plans in the country.
What is Aggregation?
Traditionally, we think of aggregation as two companies merging together. In the advisor space, aggregation may come in several forms, but most commonly as a typical merger (one firm acquires another), or when two or more firms work symbiotically but separately, consolidating their resources to achieve scale and to deliver a greater value to a client. Unlike a traditional merger, advisors may join an alliance or working group consolidating the depth and breadth of their business with other advisors to create opportunities for new programs and growth. In today’s competitive market, combining forces may offer advisors the edge to woo a new client or to enhance a relationship with an existing one.
The ‘Bennies’
Aggregation has opened up endless opportunities for independent advisory firms looking to maintain their independence yet compete in an increasingly tough market with the national consulting companies. The benefits reaped by advisors quickly trickle down to plan sponsors and participants that help drive positive participant outcomes. By pooling their resources, firms can:
Expand their bandwidth to create more innovative programs. Independent advisors run complicated businesses, manage complex relationships with their clients, and must run and manage their daily operations. In many cases they find themselves looking through the microscope of running their business, and can’t execute on what they see through the telescope to the future. Aggregation, joining an advisor alliance, or becoming part of a study group can help share some of the burden of being an innovator, designing programs, and most importantly bringing them to market to derive value.
Command a greater voice with investment companies more receptive to custom development. Investment companies have historically custom designed programs and pricing for the largest plans. When groups of advisors consolidate their resources they get a seat at the “adult table” and can open the discussion about custom designs and pricing. Collective Investment Trusts (CITs), for example, have been around for 75 years and are used by the largest plans in America, and now advisors who pool their AUM can work with investment firms to create their own custom CITs. While these opportunities have been available to the largest of plans, participants in all plan sizes may benefit from these programs.
Take advantage of non-traditional programs gaining steam with plan sponsors. Everyone is talking about financial wellness these days, but investments, servicing applications, and even technology options are now available to firms that consolidate their resources. For example, a preeminent financial wellness vendor working with fortune 500 companies could easily have a mid-six figure deal which smaller companies whose employees have just as much need can’t afford. However, a group of advisors working together can work with that very same vendor to negotiate an enterprise pricing agreement that allows them to bring this invaluable service down market to plans of all sizes. There’s no question that the majority of American’s have both a retirement knowledge and savings gap; certainly not limited to only participants in the largest plans.
Offer preferred pricing which can be extended to participants. It’s no secret that large nationwide firms receive substantially better deals on investments and on programs and services, while incurring significantly less expenses than their smaller counterparts. Advisors who work with smaller plan sponsors (with say, less than $200 million to invest) simply can’t arrange for the same deals that the larger firms secure for their participants. However, by joining forces with other advisors they can create an offering that’s comparable and competitive and delivers exceptional value to both the plan sponsor and to the employees. For example, a $1 billlion-plus plan might pay 40 percent to 60 percent less for an investment than a small to mid-market plan, but when advisors consolidate their power they can take advantage of those same pricing models. These savings are passed on to participants putting their hard-earned savings to work more effectively.
Getting Started
Advisors should consider looking for opportunities by first assessing their business and determining what’s important to the growth of the firm. From there, seek out like-minded advisors–maybe they’re working together ad hoc or in a more formal construct–to see what solutions they offer as part of their consolidated group. While innovation and programs are of important, it’s of paramount importance that the advisor enjoys the people they’ve chosen to partner with as they drive their business forward. An advisor must ask themselves, do I enjoy my time with my peers? Do I learn something new each time I am with them? Do I believe being part of the organization is going to help me innovate? If it’s is “yes” to one or more of these questions then aggregation–taking on the Goliath–may be the answer.
Bill Chetney is founder and CEO of Global Retirement Partners, an advisor resource and participant education firm based in Southern California.
Bill Chetney is Founder of Global Retirement Partners based in Carlsbad, CA. Bill is focused on bringing together and delivering a comprehensive set of services that help plan sponsors drive employee satisfaction, create educated & engaged plan participants, and knowledgeable & trusted advisors. To this end, GRP Advisor Alliance is focused on marrying the goals and positive outcomes of the plan sponsor, the plan participant, and the advisor together to create extraordinary value.
Great article and perspective from Bill, as usual. Bill always helps those outside our industry see that “advisors run complicated businesses (and) manage complex relationships with their clients”. I also agree that “in many cases (advisors) find themselves looking through the microscope of running their business and can’t execute on what they see through the telescope to the future”. I would add that I believe there is another trend in our industry that has the ability to strengthen the service delivery paradigm for advisors…MEPs. Multiple employer plans have been in the news, partly because of their bi-partisan support from Congress, but also because they are another vehicle that offers independent advisors an effective way to gain economies of scale and provide institutional solutions to smaller clients in their book of business. Covered Service Providers of all sizes continue of offer ways to implement so called ‘open’ MEPs for these reasons. As retirement plan advisors continue to seek ways to run their practices more like a business…Here’s to innovators like Bill Chetney and CSPs in our industry who continue to provide tools & options to advisors who ultimately refuse to leave the ‘little guy’ behind and are the backbone of our private retirement system.