DC National Record Keepers

By Fred Barstein • 11/10/2014 • 0 Comments

NAPA Net’s national record keeper list, provided below, was last updated in November 2014. The updated list is provided below. For a pdf of the list, click here. And please let us know if there are any providers missing from the list, if any information is not correct or if we missed any updates.

About the List

To make the list, a provider must have a national sales or service presence — meaning that it either has people situated around the country or provides outsourcing services to providers that do — like Pai, for example. A regional bank would not qualify, for example, nor would an online provider or regional record keeping TPA that has plans in 50 states.

There are 41 national record keepers, fewer than half of which (42%) are in so-called “401(k) Heaven.” This is defined as those that have enough assets and participants to remain competitive in an industry that is capital- and people-intensive — very expensive people, by the way. It’s estimated that larger providers spend more than $50 million annually just to maintain — not upgrade — their technology. Even relatively minor upgrades can easily increase that cost to over $100 million or more. And, in case you haven’t noticed, technology is changing rapidly, including mobile applications. With severe consequences when mistakes are made and mission critical information systems that cannot go down — as well as regulators breathing down their necks — providers must create and maintain systems that virtually mirror NASA’s.

The providers on the list are segmented by plan size, and the primary markets they serve are identified, even if one might have a few larger or smaller plans. Size is defined as:

  • Small (<$10 million)
  • Mid ($10-$100 million)
  • Large ($100-$500 million)
  • Mega (+$500 million)

The other categorizations are:

  • Distribution — whether the record keeper distributes through financial advisors or directly (which could mean through institutional consultants), or both;
  • Service Model — service models include bundled, where the provider is both record keeper and TPA; unbundled, where an independent TPA works on the plan; or both.

Unlike our DCIO list, in which Tier 1 and Tier 2 providers are identified, the record keepers in 401(k) Heaven are not identified in the record keeper list. There are two reasons for this. First, the list is merely the opinion of the author; and second, if advisors or plan sponsors think a record keeper is weak and likely to sell, they might be reluctant to hire that firm — or worse, they might decide to change providers.

Is This Heaven?

With significant assets and participant numbers well above 1 million, providers in 401(k) Heaven also have other attributes:

  • the parent company is committed to the market because it supports other divisions (asset management or distribution);
  • the profit margins are healthy;
  • there is revenue other than from record keeping, or the hope that there will be — like from proprietary funds, rollovers, retirement income or TDFs, for example.

To a limited extent, today’s 401(k) industry mirrors the U.S. airline industry before all the really big mergers began. Both are largely considered commodities and are capital intensive, requiring skilled and expensive personnel with very little margin for error. Some believe that eventually there will be fewer than 10 national record keepers (like the airline industry). If this happens, it will limit options, service and overall quality (like the airline industry).

Providers which are attached to larger financial institutions and which have high costs and corporate overhead are most vulnerable, since the parent firm might wonder why it is supporting a business that makes little or no money and has no chance of being a market leader. Strangely, those closest to 401(k) Heaven are most vulnerable, since they are spending a lot of money to try to get in but have not yet made it. Those in 401(k) Heaven might be looking to buy weaker competitors that complement or round out their business, and those not in Heaven might need to buy a competitor to get there.

To that point, the 600 or so smaller record keepers, some of which (like the 50 or so with more than $1 billion under management) are doing well, although many owners are approaching retirement age and are unwilling or unable to invest in technology and distribution. This raises the question of why the smaller ones — especially those with less than $100 million — are even in this market at all. It’s like performing brain surgery in your garage.

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