A new industry report today by Accenture highlights two routes for defined contribution (DC) recordkeepers navigating a future competitive and consolidated environment.
The report, “Navigating Through Turbulence: Reinventing Retirement Recordkeeping,” argues that recordkeepers will need to scale up on operational efficiency or specialize in serving unique market segments, as firms face a rapidly evolving $10.3 trillion DC market coupled with smaller margins, failing administration fees, and outdated digital platforms.
“Today’s retirement recordkeepers face a daunting challenge. From wafer-thin margins and falling administration fees to low operating leverage, they’re fighting battles on many fronts,” Accenture researchers write. “On top of that, many are hobbled by outdated platforms and technologies, which not only make internal operations cumbersome, but also impede their ability to deliver on customer promises for plan enhancements and servicing.”
As a result, more recordkeepers are being absorbed by evolving acquirers, Accenture notes. According to the report, about half of the top 20 DC recordkeepers by assets under administration (AUA) in 2011, including large players like Prudential and Wells Fargo, have since been acquired by other firms.
According to Accenture, within the next 10 years, the top five recordkeepers could administer more than 75% of total market assets, and more than a quarter of today’s top 20 recordkeepers could exit the industry.
The recent findings come as Accenture teams up with TIAA in a major partnership that will see the firm developing TIAA’s retirement recordkeeping capabilities and operations starting in 2025. The agreement aims to provide next-generation technologies and enhanced recordkeeping to TIAA’s plan sponsor clients, their employees, and plan consultants.
Strategic paths
Accenture’s report outlines how recordkeepers could move forward in this environment. First, recordkeepers can scale their operations to improve costs per participant through enhanced operational efficiencies, automation, and investments in advanced technologies. This path could position firms with competitive pricing models and the potential to offer a broader range of financial services to a large participant base.
Accenture positions scaling as a top practice for recordkeepers. In its report, the firm found that the top five recordkeepers gained as much as 13% of market share by AUA and 12% of market share by participants in the last decade.
Alternatively, recordkeepers can specialize in serving distinct market segments, such as jumbo plans, 403(b) plans, or small plans, by providing tailored products and services. This strategy focuses on creating value through niche expertise, customized servicing, and maintaining strong relationships with specific types of plan sponsors and participants.
Accenture’s report also details three operational imperatives for recordkeepers to stay competitive, including:
- Creating a competitive cost structure by transforming non-core functions, leveraging emerging technologies like generative AI, streamlining legacy systems and forming strategic partnerships that can help achieve a more efficient cost structure and enhance scalability. In fact, Accenture predicts generative AI will play an important role as the industry evolves, as they have the potential to drive cost advantages, establish deeper financial advice-based relationships with participants, and unlock new sources of revenue.
- Transforming revenue pools by establishing new revenue opportunities, including in-plan financial advice, converging wealth and retirement solutions, and curating additional products and services.
- Defining purposeful stakeholder engagement across the broader retirement ecosystem. Understanding the motivations and capabilities of plan sponsors, intermediaries, product providers, and regulators is essential for forging synergistic relationships and spotting new opportunities.
Additional insights from Accenture’s findings can be found here.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
