In nature, adaptability precedes resilience and leads to survival. When Charles Darwin referenced “survival of the fittest,” he did not mean the strongest or smartest life forms. Rather, he was referring to those that were most capable of adapting to their environmental conditions.
Facing the same challenges that are impacting the rest of the industry, investment, and retirement consulting firms—defined here as firms who typically provide investment oversight services in the mid and large plan market, endowments and foundations, and other sizable organizations—need to consider looking critically at their business model in order to survive and thrive.
Only the alignment of a new future vision, pairing their strong core investment oversight capabilities with an expanded service model, will allow these firms certain sustained profitability.
When working with firms in this segment of the market, the most common question we’re asked to assist owners with is simply “How do we best move forward building a resilient firm while aligning the needs of our partners, employees, and clients?”
This question can best be answered by revisiting what clients are really asking for and determining the most appropriate and impactful areas of service expansion are for their firm.
This shift has also led many investment and retirement consulting firms to begin questioning the black and white nature of a “non-conflicted” business model—defined as “we monitor and select investments, but we do not provide investment management or participant-related services.”
“This ‘inflection point’ is nothing new, with other players in retirement having gone through a similar pivot over the past 10 years.”
This presents definite challenges as many competitors are having success in providing both OCIO and participant level services, forcing owners to face the question of whether their clients really value their definition of non-conflict.
One of the more important indicators, further expressed by the partners of a recent Wise Rhino Group client, Portfolio Evaluations Inc. (PEI), is the increase in the number of RFPs that although still primarily focused on hiring an investment consultant, are now asking for assistance with plan participants.
With most firms, often intentionally, not providing these services, decisions must be made quickly to address this area or face a loss in competitiveness or client attrition.
In this case, PEI chose to merge with CAPTRUST, perceiving that their new partner would be able to effectively assist them not only with their core business but with the many other opportunities that their clients were asking about.
This “inflection point” is nothing new, with other players in retirement having gone through a similar pivot over the past 10 years:
- Record keepers initially provided only basic accounting services, but are now serving as fully bundled, one stop shop enterprises heavily focused on engaging participants in all aspects of their financial life.
- Larger, national investment consultants (AON, Mercer) began with a primary focus on providing c-suite consulting services and have evolved toward providing Outsourced Chief Investment Officer services.
- Retirement advisory firms have migrated from solely consulting on retirement plans and are now more and more focused on engaging the plan participant through advice, bridging retirement and wealth advisory.
Not all is doom and gloom for investment consulting firms and while their growth is outpaced by similarly sized (by revenue) retirement and wealth advisory firms, the average 3-year CAGR has continued in the low single digits.
This speaks to the opportunity for those firms willing to spend the time and effort to understand the prevailing market forces, the evolving needs of their clients, compare themselves to peers, and adapt their service model in kind, positioning to capitalize on the significant revenue opportunities present in their unique businesses.