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DC Provider Consolidation Report

By Fred Barstein • 2/3/2015 • 0 Comments

DC provider consolidation heated up dramatically in 2014, with 13 deals — up from six in 2013 and just three in 2008. The percentage of record keeper deals last year was 69% — up from 33% in 2013. So while there may be prurient interest in projecting who will be next, the results may not be so advantageous for advisors, plan sponsors and participants, especially in an industry where fees matter so much.

To gain some insight into what we can expect in three to five years as the inevitable DC record keeper consolidation heats up, we only have to look at what’s happening today in the airline industry. Despite lower costs as a result of lower fuel costs and other factors, fares have never been higher, flights have been eliminated — and airlines’ profits and stock prices are soaring.

There are now only four major airlines, three of which (United, Delta and American) have the same business model. The fourth, Southwest, dances to the beat of a different drummer — just like Vanguard. Though there are four outliers (JetBlue, Frontier, Spirit and Virgin) as well as more than 100 regionals (like the 500-plus record keeping regional TPAs) — and private jets — the vast majority of travelers fly the big four. 

Do you think record keeping systems are at capacity? Though prices continue to drop, that dynamic could change with fewer providers. 

“Frequent fliers” (i.e., top advisors and big teams/BDs) will get special perks, but they will pay for it. And though the big record keepers will use extra profits to help boost AUM and create savings that may benefit clients, they will pay for it too. 

So what’s the analogy for fuel costs in the DC industry? That would be fund prices, which continue to drop as indexers like Vanguard and BlackRock gain traction and smart beta makes big inroads. On the other hand, although air fares are up, the transportation system is running better than ever — which may also be the case for the DC industry.

Our list of DC provider consolidations, last updated in December 2014, is provided below. For a pdf of the list, click here.