How to Tell If Your 401k Record-Keeper Is Leaving

How to tell if the person who keeps your 401(k) records is about to leave

Keep an eye on the wholesalers.

Most experts in the industry agree that consolidation, like the recent sale of Securian’s retirement division to The Standard, will make the list of 43 national RPA record-keepers much smaller. Advisors and plan sponsors both wonder, “Who’s next?”

What do you think your provider will say if you ask? Only The Hartford was stupid enough to announce that it wanted to sell its record-keeper months before MassMutual did in 2009. Most of the time, we don’t know until a deal is made public.

You can look at financials, but even if they are available, record-keeper P&Ls may be mixed with those of other divisions and subject to creative internal accounting.

After more than 25 years in the RPA 401(k) market, I’ve found that the best way to figure out “who’s next” is to watch the “giraffes” of the RPA DC industry, which are the wholesalers.

At a watering hole, other animals stay close to giraffes because they have the best view and are hard to scare away. When they run, people come after them.

The DC record-keeper business is based on wholesalers. More than 90% of the time, an RPA talks to its wholesaler. They get things done. They bring news not only about their own company but also about companies that compete with them. They spread information and new ideas like bees buzzing from one flower to the next. This keeps the ecosystem healthy.

So, if good wholesalers move away from a record-keeper or stop selling aggressively, it means something is wrong. They know more than any RPA or plan sponsor, whether it’s from the vibes they get at the home office, changes in senior management, changes to policies and procedures that aren’t in the best interest of clients, cutting costs, or even reorganising commissions that will make the best people leave.

A few wholesalers or salespeople who aren’t very good at leaving or moving isn’t a sign. But when several good ones leave or stop selling aggressively, a sale or big change is probably coming, like what happened with PanAm.

As the RPA 401(k) market consolidates, clear winners have emerged. These include the Fab 5, the two payroll providers, and American Funds and Schwab, which are in a class by themselves and can take advantage of their record-keeping services licenced by regional TPAs to get IRA rollovers.

But that doesn’t mean that all the other 30-plus providers will go away overnight. It will be a battle to the death. Who will move first, Securian or The Standard? MassMutual used the money from selling its record-keeper to Empower to improve its top-tier businesses. So did Prudential, which was in the same situation as New York Life before it was sold to Hancock: it didn’t serve small plans like the Fab 5 and didn’t appeal to institutional investor consultants.

Some companies, such as Vanguard and T. Rowe, have given their back-end work to Infosys and FIS, which may be able to do scaled record-keeping for other companies. Ascensus is a service bureau that uses its technology to help 15 million savers, but only 5 million of them have defined contribution (DC) plans, and there are no plans to add Newport Group right away.

Will the promise of income in retirement keep Lincoln and OneAmerica interested in annuities? Hancock’s parent company, Manulife, can’t say it is a global leader in retirement without having a presence in the U.S., while Transamerica and Voya both sell other worksite benefits to participants.

Can anyone other than the Fab 5 and Schwab reach 97% or a higher percentage of underserved DC participants?Will some providers work with larger advisory firms like Creative Planning, which is said to be requiring partners to share data?

I’m less sure of the answers the more I learn. But there is one thing I do know: keep an eye on the good wholesalers and stick close to them. If they leave, you can be sure that trouble is coming.