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 Industry
Insight from Fred Barstein
Watching Wholesalers to Predict
Consolidation & Business Health
Many experts have
been predicting massive consolidation among DC record
keepers but the big push has yet to begin.
The businesses of many large,
national record keepers are not sustainable especially with
low plan turnover and price pressure.
The factors in favor of
consolidation mount as the parent corporations of many of
these providers are under extreme pressure to raise cash and
DC businesses are still highly regarded (see the Citistreet
sale to ING by Citigroup and State Street).
Even without consolidation,
some providers will whither unable to reinvest aggressively
in their products, service, distribution and support of
advisors.
So how can you
identify which providers are likely to sell their businesses
or will not be able to remain viable?
While we can all do the math
and look at the number of participants and assets under
management, there may be other factors that make the
equation a bit more complicated.
Certainly having a plan
sponsor, if not participant, brand helps as does a large and
skilled sales force.
Assessing the health of the
parent corporation can be indicative as well as how the
record keeping division helps the overall business model
like capturing rollovers for Fidelity and Schwab.
Even more insightful is looking
at the tenure, experience and talent level of senior
management because, if they are coming and going on a
regular basis, there is almost no chance to develop and
sustain a viable business model never mind a highly
functional team.
The worst thing you can do is
ask the record keeper if they are committed.
What do you expect them to say?
One way to
determine whether a record keeper is committed or even going
in the right direction is to watch the wholesalers who are
like the giraffes of the DC jungle.
At African watering holes, all
the animals stay near the giraffes when they are drinking
because they have the best view of when trouble is coming
and are easily spooked.
Wholesalers arguably have to
best perspective of any industry group because they are in
the field speaking to advisors and sponsors and also have an
insiders’ view of the home office.
If something is going bad,
whether sales, products, investments, service, politics or
even finances, wholesalers will know it quickly, especially
the good ones.
Their greatest asset is their
network of advisors loyal to them and, if something is going
wrong with their current employer, the wholesaler gets less
aggressive with their advisors.
Even though the wholesaler may not be able to be totally
honest, they will give you signs.
When one or two goods ones move, it’s not necessarily
a sign of trouble but when the good wholesalers move en
masse from one provider, it’s a sure sign of trouble.
On the other hand, when a provider is hiring the
really good wholesalers, it’s a sign of their commitment and
the health of their business.
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