The 401(k) Industry Is About to Explode

By Fred Barstein

Market and societal pressures are causing, on the one hand, the defined contribution industry to contract, which, at the same time, has the potential to explode. Why and how is this happening now? Let’s start with the contraction.

Consolidation in the airline industry, most like DC record keepers, was driven mostly by consumer demand for better service and lower costs. While plan sponsors are not the end consumers of 401(k) or 403(b) plans, pushed by fiduciary concerns and litigation, they have driven down fees for record keepers, advisors and asset managers. Only those with scale can survive and though advisors helped renegotiate service agreements and find new providers and lower cost investments, the time has come for plan sponsors to look at advisory services and fees more closely.

All DC sectors are contracting in part because of a flood of private equity and venture capital money that have invested over $1 billion in fintech record keepers and even more for asset managers, providers and RPAs. Those with resources and capital are squeezing out competitors while the big fish swallow up the smaller ones. The over 3,000 third-party administrators are not immune, especially if PEPs take hold with only those providing PPP 3(16) services benefiting.

IRAs will contract assuming new fiduciary rules but also because more plans are eager or willing to retain assets of terminated employees providing access to payout tools and retirement income products as well as more RPAs moving into wealth management. The math is pretty simple—much lower investment costs and lower advisory fees that continue to improve.

Record keeping TPAs, which used to number over 400 10 years ago, have dwindled to just over 150 due to acquisitions, cost of technology and competition.

Continue Reading: The Incredibly Shrinking 401(k) Industry Is About to Explode

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