DC aggregators are key to retirement system's success

Advisers, with their focus on helping participants and improving coverage, are the human element needed to improve retirement security within a voluntary system.

There are three primary adviser or consultant market segments that serve defined-contribution plans:
1. Institutional investment consultants that focus on plans with more than $500 million in assets.
2. Advisers, registered investment advisers and those affiliated with traditional broker-dealers that focus on plans with $1 million to $25 million in assets.
3. Retirement plan advisers who are part of DC aggregators or have more than 50% of revenue from DC plans, focused on the $3 million to $250 million market

Of the three, RPAs represented by aggregators are the least mature, having emerged dramatically over the past five years. They have been actively acquiring other advisers or have been acquired or funded themselves.

Almost all of the aggregators were represented Dec. 8-9 at the third annual RPA Convergence Aggregator Roundtable and Think Tank, held virtually (see the list below). People in this group are the industry’s thought leaders, creating new processes and integrating technology, fueled by capital. The future is both bright and daunting for aggregators and RPAs. Here’s how they said they see it:

CONSOLIDATION

This is both an opportunity and challenge. RPAs joining aggregators and private equity firms investing in four of the top five aggregators have provided significant opportunities to help clients and build businesses. The buzz word at the roundtable was “operating platforms,” which is a more elegant term for scaled and stacked practices.

[More: View a list of the largest retirement adviser aggregators]

Aggregators can have a greater impact on retirement income now, accounting for almost $2 trillion in DC assets — or almost half of the adviser-sold market. But there’s an opportunity to provide direction to the industry and have a separate voice in Washington, which is sorely needed.

The challenge is that acquisition prices have become so high, many can no longer afford to participate. Advisers attracted by the money might choose the wrong partner and end up having to unwind the relationship, which is time-consuming and costly.

PARTICIPANTS AND FINANCIAL WELLNESS

The biggest topic at the think tank was how to help participants and monetize the relationships with them. This includes:
— Creating customized solutions, communications and experiences.
— Cross selling wealth and benefits.
— Emergency savings, Health Savings Accounts and student loan debt.

The challenges include engaging plan sponsors in financial wellness programs, getting access to data and the looming fight with record keepers, which also want to monetize the participants.

MANAGEMENT

Building an operating platform is difficult. It has taken some of the larger firms, like CapTrust, SageView and NFP, decades. And creating culture is perhaps the most nuanced and cumbersome task. Other issues are:
— Growing organically, which increases value more than acquisitions do.
— Recruiting, onboarding, training and retaining talent, especially among millennials, who may not fit into the traditional adviser model.
— Creating efficiencies as fees decline

COVID-19 has presented opportunities and challenges. Firms had to pivot, but once they did, they found clients willing to interact remotely. For some firms, sales were not affected.

THE FUTURE

COVID-19 has accelerated many trends in the DC industry. Plan sponsors have increased concern about and more awareness of the needs of their work force. Aggregators and RPAs are in the best position because resources, people and partners are focused on them. And they are benefitting from an increasing number of plans, participants and assets under management.

Aggregators and RPAs can also partner with less-experienced advisers and acquire wealth managers to build out their practices. The need, technology and capital is here.

DC AGGREGATOR FIRMS ATTENDING

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Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ RPA Convergence newsletter.