After the acquisition of SageView by Creative Planning, it’s worth reflecting on what it means for advisors and the entire 401(k) and 403(b) market, which continues to mature, evolve and consolidate. While some are still disputing whether the deal has actually been completed, notably none are from Creative Planning or SageView.
To see the future of the defined contribution industry and related advisory businesses, look no further than the Consolidation Curve, a HBR article where consultants analyzed 1,345 large mergers over 13 years, dividing them into four stages:
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Stage 1 (Opening): One company starts with a virtual monopoly, quickly followed by three of the largest players with 10% to 30% market share.
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Stage 2 (Scale): Frenzied acquisitions as firms hone their M&A skills, focused on revenue and scale, preserving culture and creating scalable IT, with the top three enjoying 15% to 45% market share.
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Stage 3 (Focus): Five to 12 companies still in play with the top three having 35% to 45% market share, focused on profit, mega deals and relentless attack on competitors. Record keepers are in Stage 3, epitomized by the MassMutual and Pudential acquisitions by Empower.
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Stage 4 (Balance and Focus): The top three companies have 70% to 90% market share, focused on protecting their positions.
SageView was one of the founding RPA aggregators, along with Captrust, NFP, and NRP, which spawned Hub, OneDigital and World Insurance and dominated Stage 1. Unlike NFP Retirement, which was part of a benefits and P&C organization, Captrust and SageView focused on retirement and eventually wealth.
Captrust actively pursued SageView in the 2010s only to be jilted at the alter when the latter sold to Aquiline in early 2021 at a reported $325 million valuation. At the time, Sageiew advisors were mostly independent with high payouts, which they traded for equity before the sale, but are still mostly autonomous, unlike Captrust and Creative Planning.
Enter Creative Planning, which had been nosing around the DC market, buying America’s Best 401(k) in 2019 and Iron Financial in early 2021, but then shocked both the RIA and RPA worlds with the acquisition of Lockton’s retirement business in late 2021 with $110 billion AUA for a reported $500 million. Lockton wisely saw that it could not compete in the wealth market even though it had massive retirement and benefits businesses.
Some are still skeptical about whether the convergence of wealth and retirement at the workplace is real, but there’s a difference between the firms that can do it and whether the movement is viable. PE firms are not always right about which companies will succeed, but they are rarely wrong about macro trends and market sectors.
The SageView divestiture is a direct result of their inability to achieve scale in the wealth business, even after hiring John Longley from Silicon Valley Bank and BlackRock to replace Randy Long, the founder of SageView. As a result, their profit margins were low as plan fees continued to decline. At the time of the sale to Aquiline, SageView was touting its ability to convert assets into more lucrative managed accounts, which has not gone as planned.
It may also mark the beginning of the RPA advisory market entering the third stage of the consolidation curve, with PE firms and organizations like Lockton and SageView making tough but realistic assessments about their ability to leverage the convergence.
For both record keepers and RPAs, scale and distribution will keep them alive but the ability to leverage wealth and retirement will determine which organizations thrive, according to a recent McKinsey study.
There are currently 14 significant RPA aggregators, with Creative Planning and Captrust in their own class, and others struggling to catch up. There are minor players like Assured Partners currently being sold to Gallagher that are too small with little to no chance of competing. Hub and OneDigital, with vibrant leadership and significant capital, making numerous acquisitions of RPAs and wealth shops, are trying to integrate these independent entrepreneurs to create a holistic business.
Larger firms like Marsh McLennan and Gallagher do not have scalable wealth resources even though both have major retirement, benefits and P&C businesses. Cross-selling is an interesting opportunity, but it has not yet proven to win the day without wealth services, as Lockton predicted.
Some larger wealth firms like Hightower and Mariner are trying to marry institutional DC businesses with their enormous wealth capabilities, while the industry is scratching its head about the rebound of NFP retirement, Fiducient and wealth from AON back to Madison Dearborn, which sold them less than two years ago. Others like Prime Capital, intellicents, Cerity, World Insurance and SRP have viable businesses which will either scale up or be acquired by larger aggregators.
Though the price paid by Creative Planning for SageView has not been reported, it is likely not going to be a windfall for Aquiline, akin to the Lockton deal, even though SageView has more than double the AUA, which may be a warning sign to other aggregators without scalable wealth capabilities.
Regardless of the cost, it may just be a blip on Creative Planning’s balance sheet. With a $16 billion valuation, it will likely be more valuable as part of Creative Planning’s organization than standalone, even though it could be a tough transition for SageView advisors, who may not realize the return on their equity that they had hoped for, nor retain a semblance of independence as Lockton RPAs experienced.
Some may see this sale as a validation of the convergence of retirement and wealth at the workplace, while others may justifiably surmise that it may say more about the players than the game.
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