A recent article appearing in the retirement industry press
made a bold, but not necessarily accurate, statement about the consolidation of
qualified plan recordkeepers and the services they provide. First, the assertion that “rising technology
costs, lower fees and increased intellectual capital needed to remain
competitive” will lead to consolidation, and will reduce the total number of
retirement plan recordkeeping service providers. That much may very well prove to be true. The bold statement came next, claiming that
this consolidation “will result in higher fees and worse service.”
Beyond the obvious question of how the competitive need for lower fees and increased services
will eventually result in higher fees for less services – those two contrary claims were made in
consecutive sentences – there are other reasons to question the article’s
pessimistic prediction. Technology, and
the costs associated with it, have certainly come to recordkeeping. Investing retirement plan assets has become
extremely sophisticated in a mostly daily-valuation environment, and the
overall volume of transactions and plan-to-participant interactions has grown
exponentially. The idea that these
things can be done efficiently and cost-effectively by manual means, or with
simplistic technologies, is no more valid than believing that the evening news
should be shot on film, rather than digitally.
Better technology has its price.
But in many, many cases where advancing technology has been
applied, we can point to greater capability and lower prices, not less service and
greater expense. Smart phones,
computers, robotic manufacturing, even the early assembly line process dating
back to the time of Henry Ford, are examples of the quality and cost benefits
of applying new technologies to a product or service.
Another implication of the article is that the only way
providing recordkeeping services can be profitable is if the provider has
another product to sell, such as – for example – proprietary investments. Believe it or not, there are recordkeepers in
the marketplace who run profitable businesses without cross-selling anything,
just as there are fee-for-service investment advisors who make a living without
being compensated in other ways. Neither
model is wrong. But I believe it’s
inaccurate to state or imply that only by selling another product or service
can recordkeepers serve the industry well, or remain in business.
From my observations, consolidation within the recordkeeping
industry should not be seen as a sky-is-falling development. Conscientious recordkeepers will continue their
commitment to offering the best product they can, at a price that generates a
reasonable profit, but is also fair to plans and their participants. If they do less, someone will see the obvious
opportunity and take their business. This dynamic will continue to govern the
recordkeeping industry, as it has, whether the quality recordkeeper has many
industry peers, or few.
