Several macro trends are forcing defined contribution record keepers and advisors to significantly change their business models, with the most prevalent being the decline of plan fees while the costs of technology and service rise. Unless they adapt moving as McKinsey recommends from a “product” to “participant” centric model, they face heavy headwinds, unlikely to compete with scaled providers with unique distribution models, with proprietary investments and the ability to cross-sell to participants.
Accelerating that trend is the move by advisors, especially larger firms like aggregators, to automate the record keeper due diligence process, which includes RFIs with instant pricing and custom pricing through RFPs. “Ninety percent of record keeper RFPs are going to 10 providers,” notes Justin Witz, founder and CEO at Catapult HQ. “Since 2020, 88% of one aggregator’s RFPs went to just five firms.”
Automated due diligence will continue to weed out vulnerable record keepers who get fewer at-bats, less able to absorb fee declines acerbated by the automated RFP process. “Many records are dedicating over $1 million on salaries [annually] for procurement teams,” stated Witz. “One record keeper spends $7 million-plus on salaries and $1.2 million on technology to stay competitive.”
Witz also noted that one aggregator is getting 25% lower pricing while record keepers are charging less if a plan uses their proprietary investment products, not to mention the “pay to play” fees that larger advisory firms and broker/dealers charge. Baked into plan fee pricing is the opportunity for record keepers to cross-sell, further raising the stakes for smaller providers that do not or cannot.
No wonder that OneAmerica’s sales price was shockingly low compared to previous deals. This is sure to raise concerns for record keepers without scale, which is likely to result in massive consolidation within the next three years, assuming there are buyers who are getting more discerning. Two record keepers are reportedly actively looking to sell but are having trouble finding a buyer, leaving some trying to catch a falling knife.
Still, there are 40 record keepers on Catapult’s RFI system and 90 available through their RFP tool numbers that, realistically, do not make sense. Schwab, Fidelity and Principal are growing organically the quickest, with Empower through acquisitions and Vestwell fastest overall.
Adding to the mix is the explosion of new plan formation, which will require a different distribution model focused on non-specialists requiring streamlined RFI processes without personal hand-holding by external wholesalers as more record keepers leverage internal sales desks.
Fintechs have huge advantages, which equate to cost savings, but most lack dedicated distribution, relying on payrolls, broker/dealers and financial institutions to generate new business. But as larger advisory firms automate distribution through RFIs and RFPs like Catapult, these fintechs will show well, gaining traction as larger advisory firms take on more client and participant services, which most fintechs lack, and many larger providers are scaling back on.
“One advisor completed 36 RFPs in 10 minutes using our ‘Clone’ feature,” stated Witz. “We see advisors charging $20,000 to $80,000 for this service.” Just as with record keepers, advisors need awareness, resources and technology to leverage automated due diligence services like Catapult, which is why Witz is seeing more traction from aggregators.
Numbers do not lie. Catapult has seen a surge in activity over the last three years with RFP assets jumping from $4.3 billion in 2022 and 139 proposals to $92 billion and 1,243 proposals in 2024 and over $57 billion and 1,124 proposals YTD focused on plans over $1 million. RFI traffic has increased from $10.9 billion to $25.5 billion over the past three years and $24.5 billion YTD.
With plan recordkeeping and advisory fees declining, costs increasing and client expectations rising, automation and new processes are required. Even those that cross-sell will want to reduce the cost of acquisition and due diligence. These macro trends will force providers and advisors who think they can conduct business the same old way not only to struggle to grow but just survive, resulting in another wave of massive consolidation across the board.
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