The 401(k) industry is experiencing consolidation, driven by plan sponsors who are becoming more involved in managing their plans. This consolidation follows a four-stage process: Opening, Scale, Focus, and Balance & Alliance.
Currently, record keepers are in the “Focus” stage, with large firms dominating the market, while smaller firms are being absorbed. RPAs (Retirement Plan Advisors), TPAs (Third-Party Administrators), and aggregators are in the “Scale” stage, growing through acquisitions and improving their operations. RPAs have helped drive down fees by using RFPs (Request for Proposals) to push out less competitive players.
As wealth managers take more interest in the 401(k) market, they are outsourcing most functions to specialists. Plan sponsors are becoming more aware of their responsibilities and recognizing the importance of choosing the right advisor. This will lead to more consolidation among advisors, similar to what has already occurred with record keepers. Larger advisors with better technology and resources will be able to compete for participant services.
In the final stage of consolidation, fewer niche providers will remain, and the industry will be dominated by a few major players. Although fees are unlikely to increase due to regulations, there will be fewer choices. Ultimately, as plan sponsors take on more responsibility in selecting and managing their advisors, the industry will likely see improved providers, plans, and outcomes for participants.
Fred Barstein covers this in more detail in his article, “Plan Sponsors Driving 401(k) Industry Consolidation.“
