Products May 31, 2017

Recordkeeping Market Evolution Marches On

Anyone working in the retirement planning marketplace will have heard about recordkeeping margins being pushed to the floor—so why are some firms confidently doubling down?
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During a recent conversation with PLANADVISER, Raghav Nandagopal, executive vice president of corporate development and mergers/acquisitions at Ascensus, took some time to explain the firm’s strategic vision for the near- and mid-term future.

Suffice it to say, Ascensus is charging full steam ahead on the goal of rapidly building scale, partly through organic growth but also through rapidly paced mergers and acquisitions. Not only would the firm like to grow, Nandagopal explains, frankly it must grow to ensure it can continue to reinvest in its serving offerings and new technologies.

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Beyond the three acquisitions the firm announced in the last quarter alone, Nandagopal projects his firm will close anywhere from eight to 10 new acquisitions, on average, per year, for the foreseeable future.  

“Our bread and butter is the $3 million to $10 million space, but we are also considering larger targets up to $20 or $30 million,” he explains.

Nandagopal believes most of the M&A action will center on “the good number of regional banks, regional insurance companies and other entities in financial services realm who have captive, legacy retirement businesses.” Many of these providers are somewhat reluctantly serving this business as a non-core part of their identity and their value proposition, and it can be a struggle to meet service agreements with their limited infrastructure, he explains.

“As the margins for recordkeepers are squeezed more and more, this group will increasingly come to the conclusion that they do not want to be participating in the back-office functions of retirement plan recordkeeping and administration,” Nandagopal says. “Some of them are asking fundamental questions about whether they want to be or need to be in the retirement business at all.”

And so Ascensus is practicing what Nandagopal calls “the lift-and-shift strategy.”

“We come into these businesses and we tell them, ‘Look, this is a non-core part of your business and it is weighing you down and it is not sustainable long-term,’” he says. “We can help take it out of your hands and monetize it, in partnership with trusted asset managers.” This represents a win-win in that the selling firms are refocusing and extracting value from non-core parts of their business, while Ascensus rapidly expands its client footprint.

NEXT: Impact of consolidation on advisers and clients 

“The end goal of the lift-and-shift strategy is obviously to really grow the business and then have it be in a place where the firm can be healthily profitable amid squeezing margins,” Nandagopal says. “It's not easy to get there, and so you have to have a very well-defined set of criteria for the businesses you are thinking about acquiring, from a strategic, financial and cultural perspective.”  

Ascensus is also looking for companies “where there has been an entrepreneurial spirit baked in … This helps us believe that we will be able to continue to grow these businesses after we acquire them.”

Retirement advisers will understand this sentiment—the idea of culture being important to future development.

“There is a real passion in our industry about putting the best culture forward and making sure folks inside the business really want to treat clients well, not just be successful,” Nandagopal says. “In this space these two things should go together—if you’re treating clients well you should be successful. It’s maybe a little idealistic, but it is important.”

Nandagopal says Ascensus, and indeed other recordkeepers, can grow successfully and sustainably through M&A activity “only if we are effectively protecting the very strong relationships these businesses have with their adviser networks and their end clients on the ground—the last thing we want to do is have a detrimental impact on that.”

“We have absolutely passed on companies that we first considered, but realized they would not be the right fit for us, be it the way they implemented certain pricing models or the service deliveries,” he adds. “Knowing when to pass over an opportunity is just as important as knowing what business to acquire.”

Nandagopal concludes that part of what will determine the strategy moving forward—although this is harder to feel confident about given the machinations and persistent political uncertainty—is the regulatory landscape: “Obviously this is having a major impact on the broader retirement industry, so we have to be providing solutions that will help clients manage this challenge. Clearly a focus will be to ask, how can we leverage the tremendous amount of data and information we have to better enable advisers to make better decisions?”

Client Service May 31, 2017

Gen X in Need of Financial Wellness Attention

Providing access to one-on-one financial planners who can create a customized plan for employees can help employees gain confidence in their financial well-being.
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While Millennials and Baby Boomers get much attention, it could be argued that Generation X is the most in need of financial wellness help.

For Gen Xers, according to Larisa Terkeltaub, senior director of LearnVest at Work, aside from credit card and student loan debt and saving for emergencies and retirement, there’s an additional layer when it comes to prioritizing competing goals. Many parents tend to put their family’s needs, such as paying for their children’s college, ahead of saving for their own retirement and accelerating their debt repayment. Parents strive to provide their families with everything they need, which at times can come at the cost of their own savings plan.

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Monika Hubbard, AIF, institutional retirement consultant at Unified Trust Company, who is based in Louisville, Kentucky, says, “Millennials get all the press, probably because they are the digital generation, which is unique to them,” she says. “In addition, the wealth transfer from Baby Boomers will be mostly to Millennials—about $30 trillion—and interest follows money.”

According to Hubbard, Gen X’s top worry (56%) is not having money for short term financial needs. The second worry for Gen X is not having enough for retirement. Also, cash management and debt management are worries (45%).

Terkeltaub says in many cases, Gen Xers are more likely to be able to focus on goals above and beyond their basic financial security. Gen Xers who have established strong financial footing are better able to dream up what their next financial achievement may be.

Hubbard says Unified Trust Company is seeing Gen X turn to topics correlated to their stress; debt management seems to be a first priority. Gen X is asking, “How do I manage money—reduce credit card debt and improve my credit score while managing day to day expenses?” she says.

“We always tell them to save early and save more, but if the average debt for student loans is $10,000 to $15,000, and they have to pay for living expenses, they think, ‘How can I save enough to get the company match when I don’t have money for current expenses?’” Hubbard says. She adds that Generation X also worries more about breaks in service or change in jobs, unlike the Baby Boomer generation. They have to make sure they can deal with something that happens in the short term.

NEXT: How Plan Sponsors Can Help

“We’ve found that if you spread resources across too many buckets, it can feel like you’re not making progress on anything. So, a big part of this process is to strike the right balance between working toward the goals that feel most pressing and building a solid financial foundation,” Terkeltaub says.

Terkeltaub notes that employers seem to recognize that a financially healthy workforce can have a positive impact on their bottom line. She cites Aon Hewitt research that found more than 60% of human resource professionals say financial stress is having an impact on employee work performance, and Consumer Financial Protection Bureau data that shows 55% of employers believe financial wellness leads to greater productivity.

Hubbard says any retirement plan sponsor has to recognize that each generation has unique needs. They should understand generational concerns, but also individual concerns. “Younger Gen Xers have children; older Gen Xers have children going to college, and sometimes they are also facing taking care of their parents,” she notes.

Providing access to one-on-one financial planners who can create a customized plan for employees can help employees gain confidence in their financial well-being, Terkeltaub suggests. And, a dedicated financial planner can help employees take advantage of benefits already being offered by their employer.

Hubbard suggests plan sponsors should look at different wellness programs available in the marketplace. “Do look to outside vendor support, because when you start talking about very personal things, employees don’t want to talk to someone in company, and employees need to feel they can trust and share personal information,” she says.

She notes that unfortunately a lot of small businesses don’t have the resources to go to bid for outside organizations. For those that don’t have the resources, and even for additional support for those plan sponsors that do, they need to ensure their retirement plan provider is engaged at the participant level, according to Hubbard. Providers can offer tools and thought leadership to help employees reach retirement success; tools not just about retirement savings, but addressing challenges to get to retirement success.

“When employees understand the basics of financial planning and how to improve their finances from the core level, they can work to establish a solid foundation from which to continuously build upon,” Terkeltaub says.

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