Finance and Accounting

The Retirement Conundrum: the changing market dynamics for retirement services

In the last article of the Retirement Conundrum series, we touched upon the challenges faced by recordkeepers and other stakeholders in the retirement services ecosystem. In this piece, we will delve deeper into these challenges and explore ways in which the incumbent players are countering them.

Industry Consolidation

Narrow profit margins, increased technology requirement, and demand for customization from the largest customers are a few of the challenges that are driving service providers to consolidate and attain scale.

Although consolidation efforts in the industry started some time ago, all signs point towards it being here to stay. According to a 2021 report by CAPTRUST, it is estimated that in the last 10 years, the number of recordkeepers has reduced from 400 to around 150. This trend of consolidation could also be partially stemming from firms that consider recordkeeping as an ancillary business and want to focus on their primary line of business such as banking, insurance, asset management etc.  Empower, for example, acquired the record-keeping businesses from MassMutual and Fifth Third in September 2020, and SunTrust (Truist) in January 2021, while Principal Financial Group acquired Wells Fargo's retirement business in July 2019. In fact, Empower was created in 2014 by combining the record-keeping businesses of Putnam Investments and Great-West Financial, with the acquired large plan DC business of J.P. Morgan Asset Management.

To put things in perspective, the top10 recordkeepers have increased their share in total DC assets under administration from 50% in 2006 to 71% in 2018. This was led by Fidelity Investments with $2.5 trillion assets, servicing 33,700 plans, for over 25.8 million participants, followed by Vanguard with $1.5 trillion assets, 2,500 plans, for around 5 million participants.

Cradle to grave

In a bid to tackle the challenges of low margins associated with the recordkeeping business, providers are increasingly focusing on creating new revenue streams and offerings that are bundled with wealth management services. Providers in this industry are now wanting to offer cradle-to-grave services as centralized providers, handling the lifecycle from initial investment to retirement corpus.

Benefits broker OneDigital, for instance, acquired Resources Investment Advisors, a $45 billion hybrid RIA and 401k account manager in February 2020, with an arrangement consisting of 13 separate deals. Empower Retirement completed the acquisition of digital wealth manager Personal Capital in August 2020, in a deal valued at about $1 billion to build a ‘unified financial wellness’ offering. The common intent in the above deals was to develop an integrated platform to deliver personalized advisory, financial wellness, and comprehensive financial planning to individual investors and retirement plan participants.

Technology focus

The flexibility to customize, the ability to meet plan sponsor needs, and the scalability of a record-keeping platform have a direct bearing on a provider’s capability to offer services efficiently. However, the majority of service providers still rely on proprietary, or legacy applications and databases, posing a challenge in a dynamically changing landscape. Some of the main challenges with these archaic platforms are:

  • A considerable amount of manual effort required for data entry due to the lack of consistent data formats between different systems
  • Nonexistent or cumbersome reporting mechanisms make it difficult to accurately determine participant costs
  • Difficulty in creating automated workflows and performing integrations due to the existence of multiple systems running on separate architectures

A 2020 Report by Everest Group identified a high incidence of home-grown, legacy, and mainframe-based recordkeeping systems as the root cause behind profitability and customer experience issues. The trend was seen in eight of the top 10 US-based DC recordkeepers.  

The total cost of ownership for recordkeepers has also gone up consistently, as the associated platforms are costly to maintain, upgrade, and integrate. This further squeezes the operating margins of recordkeepers. Moreover, legacy systems are not nimble enough to respond to evolving compliance mandates adequately and quickly such as ERISA, Section 404(C), Secure Act, and the Department of Labor’s (DOL) fiduciary rules. These challenges are causing a host of fines, lawsuits, and sanctions from the Internal Revenue Service and DOL.

These challenges make a strong case for the industry to modernize existing platforms. In doing so, recordkeepers and administrators can look at the following benefits:

  • Cloud-native and micro-service-based architecture
  • Ability to accurately onboard data, streamline the validation process, and enable efficient workflows
  • Customized workflows to simplify the automation of complex business processes
  • Dynamic client experience owing to data, analytics, reporting, and productivity tools that help to service clients across multiple channels
  • Achieve cost-effective scalability through Cloud
  • Mitigate compliance risk
  • Deliver mission-critical disaster recovery


Process Outsourcing plays an important role in this transition. It will give service providers access to a dedicated and skilled workforce to take up ancillary operations related to recordkeeping. IT outsourcing on the other hand can provide implementation and maintenance of advanced applications within a high-performing tech infrastructure.

The Infosys – Vanguard deal was a defining moment in this evolution. Vanguard will benefit from the software platforms, administration, and other processes put in place by Infosys for its record-keeping business along with 1,300 of Vanguard employees moving to Infosys. Vanguard would continue to prospect with clients, design plans, manage investments, and sell advisory services to plan members. The two companies are working together to modernize the platform and set up a cloud-based record-keeping system. Infosys will also leverage its Global Delivery Centers to provide business operations and technology services, while focusing on process excellence, Artificial Intelligence, and robotic technology.

Another example is the recent announcement of T Rowe Price transferring 800 record keeping operations and technology employees to Fidelity National (FIS) to focus on their core strength – investment management, client services, and participant experience. T Rowe Price will leverage FIS to improve the pace of enhancements it delivers to clients, including recordkeeping modernization, additional retirement income experiences, new financial wellness, and digital payment capabilities.

The changing market dynamics

It must be noted that an annual survey run by NEPC, a consulting firm, has shown that the median recordkeeping fees per participant between 2006 and 2018 have dropped from $118 to around $59 and is in line with driving the aforementioned trends in this article to help  service providers counter the loss in revenues, as well as, the consistent squeeze on margins across the years.

The US retirement market landscape is changing at a lightning speed, driven by shifting demographics, digital engagement, and increased competition from traditional providers as well as new market entrants. This has driven the need for having an agile and centralized platform organization-wide to ensure data consistency across various sources, allowing service providers to create customized and personalized offerings. This is the reason why service providers are rethinking traditional business models and looking to reposition themselves for growth, focused on leveraging the right technology, efficient workflow, and people management, to drive greater value for the clients.

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