Record keepers have raced to consolidate in recent years, driven by the need to grow profits in an industry faced with thin margins but growing demands for sophisticated data analysis, robust cybersecurity, and, of course, lower fees from plan sponsor clients.
These demands show no signs of abating.
Vanguard Group Inc. is the first to chart a new path in its industry, and it will be interesting to see if other record keepers follow. The nation's fourth-largest record keeper, with more than $560 billion in assets under administration, Vanguard plans to transfer software platforms, administration and associated processes of its record-keeping business to India-based technology firm Infosys.
The deal is expected to help Vanguard achieve two long-term objectives: drive down costs and ramp up technological capabilities using Infosys' cloud-based platform.
In addition to assuming day-to-day operations of the record-keeping business, Infosys will lift out 1,300 Vanguard employees and place them in comparable positions within Infosys.
It's no secret that Vanguard has struggled in recent years with technical difficulties, including glitches in online connectivity and plan participants receiving incorrect account information.
The partnership could provide a much-needed technology boost for Vanguard, while keeping all-important client service and investment management operations in-house.
Success depends on the smoothness of the rollout, whether Infosys can deliver on its promised technology upgrades and whether plan sponsors maintain confidence in the strength of Infosys' cybersecurity protocols.
Other industries have shed operations to better focus on core strengths. Will Vanguard's experiment set off a new trend among record keepers? Will the move attract other technology firms to the record-keeping business?
If the shift proves to add an advantage, expect other record keepers to follow to stay competitive. It's a trend worth watching.
