What Creative Planning’s deal for Lockton’s retirement unit means for RPAs

The transaction marks the first time a top-five RIA has acquired a top-five retirement plan adviser firm, which could send Creative Planning's rivals scrambling to find larger RPAs.

In a move that should accelerate the convergence of wealth and retirement at work and concern all RPA aggregators that lack a robust wealth management practice, Creative Planning has acquired Lockton’s retirement division.

The transaction, which marks the first time that a top-five RIA has acquired a top-five retirement plan adviser firm, could send Creative Planning’s rivals scrambling to find larger RPAs. The acquiring firm has $100 billion in assets, and Lockton’s $110 billion retirement business will more than double those assets.

While DC record keepers are in stage three of the consolidation curve — epitomized by large deals like the Ascensus acquisition of Newport Group and Empower’s purchases of MassMutual’s and Prudential’s record-keeping businesses — RPAs and RIAs are in stage two, where there are more but smaller transactions.

In 2019, Creative Planning bought America’s Best 401(k), a small-market record keeper. Then this year it acquired Iron Financial — a 3(38) fiduciary and investment provider — signaling its interest in the DC market.

The Lockton deal is a statement.

Among the large RPA aggregators, only Captrust has a robust wealth management practice. That includes $75 billion of the company’s total $700 billion practice but accounts for half of its revenue and more than half of its profits. Generally, wealth management assets are worth 10 times DC assets, which mostly include plan-level, not participant, services.

Lockton faced the same tough decision that many other large RPA aggregators face — either develop participant services, or sell. It was rumored that Captrust and SageView were interested in Lockton. Creative Planning’s private equity backer, General Atlantic, was rumored to have lost to GTCR and Aquiline, respectively, in stakes in those companies. It was determined not to lose again.

There are smaller RPA aggregators, most notably Prime Capital and Intellicents, which have both wealth and retirement practices. Many RIA aggregators like Hightower Advisors, Carson Group, Focus Financial Partners, United Capital and Mercer Global Advisors have modest but mostly accidental defined-contribution practices.

While DC plans generate wealth management, the opposite is not true, which is why RIA aggregators have ignored RPA firms. But RPA firms that have wealth capabilities, like Captrust and Greenspring Financial, understand that DC plans can be a powerful lead generator for their wealth practices.

Like the recent Ascensus and Empower deals, Principal’s purchase of Wells Fargo’s business and the creation of Voya through the merger of ING and CitiStreet, the Creative Planning deal is a seminal moment for the RPA market. It could lead to bigger deals crossing between the RIA and RPA markets.

While RIA firms have higher valuations and more PE money chasing those valuations, the only way for them to grow is organically or through more acquisitions. RPA firms, on the other hand, can also grow by cross-selling financial services to DC participants. RIA aggregators are better equipped to serve participants than all RPA aggregators, including Captrust, which makes them dangerous competitors that can arbitrage their valuations and leverage their PE backers.

But wait, the plot thickens.

As record keepers make the move into stage four of the consolidation curve, five to seven firms will have 70% to 90% market share. The incremental participant cost savings drops precipitously with each acquisition. That will force record keepers to look at adjacent businesses like participant services, where they have an advantage over advisers because they have access to the data and control the tech platform.

That may be at why at the 2018 InvestmentNews RPA Aggregator Roundtable, Empower’s Ed Murphy said, “Why can’t we buy Captrust?” It seemed far-fetched at the time, but maybe not now, especially after the company’s acquisition of Personal Capital.

This will all make for interesting discussions at the RPA Convergence Aggregator Roundtable and Think Tank this Wednesday and Thursday, where the top RPA firms will discuss the future of their businesses. Stay tuned for the recap next week.

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.