The retirement plan third-party administrator is the definition of a dispersed cottage industry, with over 3,000 practitioners, that seems ripe for consolidation. Many have tried. None have succeeded. But Ascensus' FuturePlan, led by industry veterans Jerry Bramlett and David Musto, is making a run — and it appears it has a good shot.
Ascensus had, until two years ago, primarily been a bundled provider, meaning it offered both administration and record-keeping services to its retirement plan clients. It served primarily as a back office to financial services companies that either wanted to participate in 401(k) record keeping and be able to sell their investment strategies (Vanguard Group, for example) or preserve client relationships (BB&T, for example). In 2017, backed by its private equity partners, Ascensus launched an aggressive TPA acquisition strategy; to date, it's bought more than two dozen TPA firms with almost $200 million in revenue, 46,000 plans and 1,400 employees.
The question with roll-ups, especially for high-touch consulting practices, is about execution. Even more importantly, how does the acquirer retain clients, most of whom were sold and serviced by the owner, if the owners walk out the door? Once they get paid, sellers are likely to leave, especially if the buyer starts severely cutting back staff, resulting in degraded service. Sometimes the financials require it along with getting rid of the high-paid owners.
But FuturePlan seems to be pulling it off. At a recent industry conference, Mr. Bramlett stated that his plan calls for the retention of owners, most of whom are part of a 60-plus-person national sales force, rather than hiring outside industry veterans. "We've only hired one outsider," Mr. Bramlett claimed.
TPAs are the backbone of the small-defined-contribution-plan market, accounting for a majority of plans with less than $10 million in assets. Not only do local TPAs hooked up with national record keepers like Voya Financial and John Hancock allow business owners to design plans that benefit them most, they serve the emerging-adviser market, which needs the plan design expertise and hand holding of a TPA.
A national TPA offers advantages and protection that local firms, even larger ones, cannot offer to both advisers and record keepers.
There's industrywide concern about cybersecurity and data privacy — TPAs might become targets for hackers hungry for personal information like Social Security numbers and payroll data that TPAs possess. With more TPAs acting as 3(16) fiduciaries, plan sponsors and advisers will be looking for those with deeper pockets and insurance, in the event they have to pay damages resulting from their actions. The move to multiple employer plans (known as MEPs) where TPAs may act as the lead plan sponsor will only heighten that concern.
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Record keepers that work with TPAs watched the FuturePlan roll-up carefully as some of their biggest relationships became part of what had been a competitor. But Mr. Bramlett has quelled fears that FuturePlan would try to convert plans to the bundled side. Quite the opposite, FuturePlan provides efficiencies for these record keepers with consistent processes and systems.
And with a 60-plus-person sales force, which Mr. Bramlett intends to grow into one of the largest in the industry, record keepers might be tempted to scale back their own and rely more on FuturePlan's sales prowess.
Advisers that have long-standing and trusted relationships with local TPAs are unlikely to abandon them anytime soon. Business owners are also unlikely to dislodge long-standing relationships with local TPAs who have helped them solve problems.
But as advisers, especially the growing national advisory practices, look to place new business or create new relationships, they will be tempted to partner with a deep-pocketed national TPA investing millions in technology and building an integrated adviser dashboard.
For years, elite plan advisers with dozens of record-keeper relationships have been threatening to consolidate their books of business but have made little progress. It takes precious time and money to convert plans, plus it may not be in the best interest of the client. Mr. Bramlett claims that FuturePlan's dashboard could allow advisers to more efficiently manage their plans even with multiple record keepers.
Even with 26 acquisitions and counting, FuturePlan is just making a dent in the vast TPA market. But they offer interesting options for larger record keepers under constant fee pressure always looking for ways to be more efficient as well as for advisers looking for a TPA partner that offers protection, consistency and a national presence.