Retirement plans are increasingly slow to change providers, and that is becoming a challenge for the record-keeping industry, said guests at the RPA Convergence Record Keeper Roundtable and Think Tank.
Across plans of all sizes, advisers and consultants can have little incentive to recommend record-keeper changes, attendees said at the two-day event on Dec. 14-15. But among very large plans specifically, those with at least $1 billion in assets, changes can be rare for another reason, they said.
In some cases, “large plans can’t find anyone to bid on them,” said Tim Rouse, executive director of The Spark Institute. In many cases, plans have of that size have already secured competitive pricing, and the cost has been driven “down so much it’s going to be tough for another provider to take that plan over and make a profit,” Rouse said.
“The margins just aren’t there to move a big plan over.”
Record keepers benefit from seeing plans turn over, but there could be more of a focus on retaining clients in the future, said Mark Dence, national account director at American Funds.
With big plans having low administrative costs, “that’s probably pretty good for the marketplace,” if not for turnover, he said.
“We always lean into sales, but I wonder if in the future we’re going to be more deliberate in paying attention to retention,” he said.
Retaining individual participants, after they leave an employer or retire, is also becoming more important as retirement income options are added to 401(k)s, attendees said.
“An adviser doesn’t want to hear that, but as a record keeper, I need revenue, I need my margins. And I might want to keep a participant in-plan,” said Ralph Pallante, director of strategic execution at OneAmerica.
OneAmerica further clarified after this story was initially published online that record keepers and advisers have the same goals in serving participants, but in regard to revenue there is a challenge among financial professionals in “finding a balance, because there are more people retiring than new participants being added on.”
Keeping participants in-plan is a trend that has regulators’ support, Rouse noted.
“There has been a push for a number of years now by the folks in Washington -- they want to see participants remain in-plan, because the plans are generally cheaper [than IRA options], and there is a fiduciary overseeing the plan,” he said.
Employers also benefit from keeping participants in their plans, as more scale gives them bargaining power.
But there is another angle to the issue, being cognitive decline as participants age, he said. Employers are not experts on that, and they may not want the responsibility to help those participants in their plans after they retire, he said. For example, he said, how does a plan sponsor handle the responsibilities when noticing a participant’s cognitive decline?
“We want them in the plan because they have large account balances … [but] we can’t be responsible for an elderly population in that regard.”
This story has been updated to include additional comments from OneAmerica.
A $141M judgment and a federal asset freeze collide over one shrinking pool
The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.
Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.
CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.
The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
