Competing for Advisers With Tools and Services: Retirement Industry M&A Activity

Even against the background of years of accelerated merger and acquisition activity in the retirement plan services and financial advisory marketplaces, it’s been something of a busy week of new deals and developments—presenting a chance for advisers to step back and take stock of a rapidly evolving industry ecosystem.

Starting off the week, in a deal that combines two fiduciary training and technology solution providers, news emerged that Fi360 has acquired the Center for Fiduciary Management (CFFM). Talking through the motivation behind the acquisition, Bill Mueller, CEO of Fi360, told PLANADVISER that compatible corporate cultures and a shared vision for the long-term future were both top factors in getting the deal done.

“I first met Scott Revare, founder and CEO of CFFM, more than a year ago, and it became evident quite quickly that he had a similar corporate outlook to ours—one that is very client service oriented,” Mueller said. “I got the feeling right away that [CFFM] understands where the industry is going. The process unfolded all the better as we found out that they have some key pieces of the puzzle that we didn’t.”

In particular, Mueller said he looks forward to integrating CFFM solutions such as FirmPlus, an investment due diligence platform; RFP Director, a research and RFP management platform; and Stable Value Navigator, which offers data and insight about stable value funds along with an opportunity to compare advisers’ fund choices. Mueller pointed out what he sees as the significance of the Stable Value Navigator. While there is more chatter these days about target-date funds (TDFs) and even money market funds, stable value holdings still represent a significant portion of defined contribution (DC) plan and individual retirement account (IRA) assets.

“We had the Fiduciary Score rating to begin with, but that covers mutual funds, exchange-traded funds, collective investment trusts, and TDFs. Stable value funds, up to this point, were not in there,” Mueller noted. “This is still a really significant piece of retirement plan menus, so it’s great that we can now bring out this stable value product and help advisers and their own clients do peer comparisons and make a more informed decision about the stable value products they select.”

Perhaps most informative with respect to wider industry trends was the way Mueller spoke about the onboarding of CFFM’s Fiduciary Pilot program, especially for non-specialist advisers who have just a handful of plan clients. “Fiduciary Pilot is an easier and more efficient way for them to run their reports timely and make sure they are doing sufficient fiduciary monitoring,” he explained.

A more sophisticated retirement-focused adviser may find certain features and functions missing from the streamlined Fiduciary Pilot, but other advisers, based on their clients and business model, don’t necessarily need all of the fiduciary capabilities than an Fi360 or CFFM can bring to bear. Asked to reflect on this point—that there are still a lot of advisers out there serving only a small handful of retirement plans and focused more on the wealth side—Mueller agreed that recent industry trends have been hard to read.

“At an earlier stage we were seeing a clear push by broker/dealers to consolidate retirement plan [clients] within smaller teams of retirement specialists. But I think this has proven to be more difficult than they anticipated, and with recent regulatory changes, they have come to the conclusion that this is not necessarily the right move,” Mueller observed. “This is not least because clients often want to stay with the advisers or brokers they have, rather than move to a retirement specialist.”

Mueller went on to suggest another important industry trend is reflected in the Fi360/CFFM deal: “We have a new business intelligence layer that we have been working on, meant to give a broker/dealer or wirehouse home office a very granular view into all the products and the pieces of their business on the back end. We are thrilled about our developing custodial data feeds, from that perspective.”

With the CFFM acquisition, Fi360 is collecting data from more than 60 retirement plan recordkeepers. And the data is meant to be actionable, Mueller emphasized.

“The home offices, the offices of supervisory jurisdiction, they are increasingly interested in gaining insight into their advisers’ net holdings and in their clients’ held-away assets,” Mueller said. “This represents an opportunity for them to prospect rollovers, of course, but it’s also a potential source of liability. So there is a real interest in improving visibility into all of these matters.”

Another provider, a similar take

On the same day Fi360 announced its acquisition of CFFM, PLANADVISER also spoke with Cathy Clauson, senior vice president for investment product management, Retirement Plan Services at the advisory tools and solutions provider AssetMark. The conversation marked the third anniversary of an important acquisition in the development of AssetMark—that of the Aris Corporation of America, which provided financial solutions to advisers and their clients.

“That integration effort started with the relatively easy migration of the high-net worth business,” Clauson observed. “But the next task was moving the retirement plans business, which they had been running since 1974. It’s really interesting to look back because at that stage, the plans and relationships were all still highly manual and highly customized, client by client.”

The Aris retirement advisory business had started as an entirely in-house operation conducted by a single attorney and staff actuary.

“They would just build out single plans for clients,” Clauson said. “They would build you whatever plan you wanted, and we inherited that. So our issue was that we had great expertise and great advisers coming on board who really knew the retirement business inside and out, but it was not scalable at all.”

Clauson and company spent more than a year, most of 2016 and into 2017, studying that business and mapping it over to a more scalable solution.

“We have moved to work with a service provider that helps us with all the recordkeeping and administration—we have outsourced it,” Clauson said. “Today it is a white-labelled solution that we use, coming from Epic Retirement Plan Services out of Rochester, New York. We like that they are independent, like us.”

Clauson stressed that the effort was far from easy to make this migration.

 “As service providers plan for their future, they must understand any major conversion of business processes and systems is going to be painful, especially when you’re doing something new, which we believe we are.”

The lesson is that moving to scalable, repeatable solutions with the right service model is not a simple matter. AssetMark did lose some advisers (and their sponsor clients) during the conversion, Clauson confirmed, but they kept the vast majority of the assets and now feel well positioned for what is to come.

“Many readers are probably facing conversion challenges of their own, and they can certainly identify with the difficulties of migrating away from legacy technologies and manual systems to a more modern approach,” Clauson added. “It was difficult, but if you follow your vision and you can deliver something new, the payoff will be there. And our advisers are grateful, because they can now compete even more effectively, including in the small plan space.”

Clauson concluded with another reflection from earlier in her career.

“I started my career with Charles Schwab, and we were seen as being very disruptive at that time for bringing investment services directly to investors,” she said. “Of course, this disruption did not by any means kill the brokerage market, as some predicted it would, and it certainly didn’t kill the adviser market. It was simply a new platform for investors to use. I was also around when the Internet was first coming into this space, and everyone for a while assumed that broker/dealer branch offices would just vanish, and that obviously hasn’t been the case, either.”

The real outcome of these developments was that it pushed brokers and advisers to adapt and to become more capable on the digital side, Clauson said. In fact, self-service and digital communication technologies have greatly benefitted advisers and brokers and have helped them up their game. Thinking about today’s marketplace, as robo-advice providers and other new sources of competition come into play, the same story is playing out.

Questions of commitment

Another interesting advisory market development this week came in the form of an announcement from broker/dealer Cetera Financial Group, which revealed the launch of a new 401(k) Practice Development Program tailored for its advisers—both those currently serving retirement plans and those seeking to expand into this market.

According to the firm, the program features a “robust curriculum of live, web-based training sessions supplemented by industry-leading resources and tools.” It has been developed with Nationwide Financial and the retirement plan advisory consultancy KnowHow 401(k)—with the stated goal of accelerating the growth of Cetera’s 401(k) businesses.

Reflecting the language used by Fi360 and AssetMark, Cetera said its new program “demonstrates a long-term commitment to supporting retirement plan-focused advisers by expanding the firm’s existing offerings in this area, and it will help to extend our focus on holistic advice to more retirement plans and participants.”

Tim Stinson, head of wealth management for Cetera Financial Group, said an important motivator behind the new program is the simple fact that plan sponsors are increasingly searching for solutions that can help them meet their fiduciary responsibilities and maximize participant engagement.

“Our new 401(k) Practice Development Program provides both experienced advisers and those new to this market with the knowledge and tools they need to address these opportunities confidently and expand their retirement plan businesses,” he explained.

For advisers participating in the program, web-based training sessions are conducted over a three-month time frame by KnowHow 401(k) founder and Managing Director Chris Barlow. Each session will cover topics such as sustainable business planning, marketing, meeting with plan sponsors, and more. Enrolled advisers will also have access to KnowHow 401(k)’s fully integrated resource center, and will receive support during and after the program from Cetera’s Retirement Plan Solutions consulting team, who will be available to help them implement the strategies and tactics they learn.

Jon Anderson, Head of Retirement Services at Cetera Financial Group, emphasized that this move is about the long-term retirement industry outlook. He said the 401(k) Practice Development Program complements and further strengthens Cetera’s investments in its growing Retirement Solutions team, which currently consists of 45 professionals with backgrounds in the retirement plan space. “Cetera is also the only network of firms supporting independent financial advisers with its own in-house third-party administrator (TPA) offering,” he suggested.

Are others pulling back on retirement advice?

This expansion by Cetera to increase its support for retirement plan-focused advisers is coming at the same time that LPL Financial, another large national broker/dealer with a significant footprint in the retirement market, has confirmed it is in the process of closing its Worksite Financial Solutions platform, which had been designed in part to help advisers generate new business from 401(k) rollovers. While the move by LPL has been interpreted by some as a pullback from the retirement market—that is not the only possible interpretation.

Indeed, as explained by LPL spokesperson Lauren Hoyt-Williams in a recent interview with InvestmentNews, the plan at LPL is actually to leverage savings from the winding down of the Worksite program and “reallocate it to enhance components of retirement plan support, including financial wellness, marketing resources and advice programs that enable advisers to serve in a fiduciary capacity.” LPL is also “increasing capabilities within our Retirement Partner Consulting Program, and creating a suite of marketing materials for insurance, high-net-worth and trust clients to help our advisers capture ancillary business related to the employer-sponsored plan space,” she added.

Providing some additional context, readers may recall it was just about a year ago that high-level staffing changes were announced at LPL, to the effect that David Reich, former head of the Retirement Partners Group, was leaving the firm. His duties were taken over by Steve Lank.

Before that point, LPL had structured its specialized clients (including retirement plans), high-net worth, insurance, and trust businesses in a way that delivered direct support to advisers serving these niche markets. Coinciding with Reich’s departure, the firm began an effort to unify these groups into one common entity that would provide sales and support to all advisers and institutional clients.

At the time, Hoyt-Williams told PLANADVISER that doing so would “create increased awareness and greater access to the depth and breadth of resources and expertise LPL has available to support advisers.”

“We believe unifying these business units to deliver a full suite of specialized services and resources will help our advisers grow their businesses and will be a differentiator in the market,” she said. “We remain fully committed to each of these areas of business. The integrated approach enables us to move our business forward in a way that aligns with the direction of the industry, and provides us the opportunity to deepen the value we deliver to our advisers.”