Propelled by a strong stock market, defined contribution record keepers enjoyed a robust increase in assets under administration last year, disguising, however, slow growth in participants' accounts and even slower growth in the number of DC clients.
Aggregate assets rose to $9.7 trillion as of Sept. 30, up 18.2% from the previous 12-month period, while the number of participant accounts were up 4.1% to 109.1 million, according to the latest annual survey by Pensions & Investments. The number of sponsor clients rose only 0.9% to 686,062.
DC consultants and researchers say that an industry buffeted by thin profit margins, a greater demand by clients to reduce fees and receive more services, as well as a need for more technology investing, is reaching a point where record keepers and/or their corporate parents must decide whether to spend the extra money, get out or adjust their business models.
"The fastest way to grow is through acquisition," said William Ryan, Chicago-based partner and head of defined contribution plan solutions at NEPC LLC.
One frustration for record keepers seeking new clients — even in good times — is the process for a sponsor's RFP. Many sponsors put their record-keeping requests up for bid every three to five years, Mr. Ryan said. It takes a sponsor's investment/administrative committee three to six months to prepare an RFP. If the RFP results in a change in record keepers, it can take another 180 days to complete the switch, he said.
"There is a saturation point" for record keepers gaining business in DC markets with sponsors having $100 million or more in assets, said Robyn Credico, the Las Vegas-based defined contribution consulting leader for Willis Towers Watson PLC.
For record keepers on the prowl for new clients in these markets, sponsor process is likely to cause them anxiety. "You have to be doing something really horrible for a sponsor to move" to a new record keeper, she said. Among her clients, she has seen more fee and benchmarking RFPs but "about the same" each year for the number of searches for new record keepers. She doesn't expect the search volume to increase.
DC expert Lew Minsky is a bit more optimistic, noting that the coronavirus pandemic affected record keepers' efforts to grow organically. Plan sponsor conversions and RFP searches have been "slower than in normal times," said Mr. Minsky, the Palm Beach Gardens, Fla.-based president and CEO of the Defined Contribution Institutional Investment Association. "I haven't seen any quantitative data on potential RFP activity but suspect it will come back slowly at first and return to normal over time."
A common theme of the RFPs is that record keepers will continue to experience "ongoing pressure to cut costs, add functionality and improve service levels," he added.