To remain profitable, retirement plan providers will have to become larger or more technologically savvy to grapple with ever-increasing fee pressure and increasing demands from plan sponsors and participants.
That's the key finding of a
report on U.S. retirement markets from Cerulli Associates, which said that plan providers must consider opportunities for growth — whether organic or through mergers and acquisitions — in addition to pursuing technological advancements that protect against cybersecurity threats, contribute to operational efficiency and facilitate client engagement.
"These enhancements are essential to maintain a competitive edge," said Anastasia Krymkowski, associate director of retirement at Cerulli Associates.
The report asserts that current market dynamics favor an oligarchy of retirement plan providers, supported by estimates that the
10 largest record keepers will represent more than 75% of record-kept 401(k) assets by the end of this year.
[More: Consolidation alters RPA space]
But mergers and acquisitions are only one approach to building out new capabilities, the report says.
"In other cases, strategic partnerships better align with firms' objectives and respective strengths," Ms. Krymkowski said. "Whether through acquisitions or strategic partnerships, retirement-focused firms that are lacking the capabilities to provide comprehensive financial guidance should consider their role in supporting plan sponsors and participants. They should also evaluate the potential to expand their purview into more holistic and higher-margin lines of business such as fiduciary services and managed accounts."
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