High-profile acquisitions and mergers among record keepers is expected continue as firms cope with pressure for lower fees and more services in a low-margin business. Experts believe that fee pressure, and technology costs will have firms always looking for next deal.
The April announcement that Great-West Financial would acquire the large-plan institutional record-keeping business of J.P. Morgan Asset Management (JPM) was the biggest deal in the past 18 months, indicating that the industry is not slowing down.
Many common themes have emerged that will affect record-keeping consolidation trends in the future. Reasons include the pressure to reduce fees, the cost of improving record-keeping technology and the skill in deriving sufficient income from selling other products and services to participants.
Records have shown that median record-keeping fees have fallen, which has service providers determine if low margins make sense.
There are multiple sources of fee pressure — corruption, increased awareness of costs by plan executives, Department of Labor fee-disclosure regulations that took effect in mid-2012, and fiduciary breach lawsuits against sponsors claiming excessive fees.
“Like other record keepers in the marketplace, we recognized that over the next three to five years, there's going to be a major transformation in the underlying technology that supports this industry,” David Musto, chief executive of J.P. Morgan Retirement Plan Services, Kansas City, Mo., said in an April 23 conference call with DC plan consultants.
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