Retirement plans are becoming increasingly intermediated, according
to Cerulli’s report, “Retirement Plan Distribution
Dynamics: Small- and Mid-Sized Plan Focus.” A wide range of plans
seek to partner with an expert for fiduciary duties and spread that risk to
other unrelated third parties. This intermediation is highest in the small- and
midsized-plan markets (plans with less than $250 million), Cerulli reported.
“We surveyed both TPAs and retirement specialists, and both
expect an increase in revenue this year,” said Alessandra Hobler, Cerulli
analyst. “Specialist advisers are expecting the largest jump, with 70%
expecting a significant increase. TPAs are a bit more reserved with 57% expecting
increases in their revenue for 2012, and one-fifth of firms expecting a
Fee disclosure regulations are causing increased fee
transparency among providers, which Cerulli anticipates to be a big factor in
more business shifting into the TPA marketplace. Cerulli noted that some TPAs
are expecting fee transparency to be a huge gain.
Yet, other TPAs are concerned that the increased focus on
fees will impact revenue across the board. Increasing distribution and service
fees, as well as fee disclosure regulation, make it difficult for firms to
increase their price, causing profit margins among TPAs to shrink, Hobler said.
TPAs are able to maintain uncomplicated payment arrangements, compared with
other commission- or asset-based compensation models, Cerulli noted,
positioning TPAs to capitalize on future growth.
Cerulli predicts TPA-controlled assets will reach $861
billion by 2014 (a growth of 34% from 2011). Fee disclosure, simplification of investment choice through qualified
default investment alternatives (QDIAs) and fiduciary role clarifications might
create favor for TPAs, if they are willing to step into fiduciary roles.
The opportunity for asset managers is to provide dedicated
focus on TPAs and make an effort to understand their needs. This requires a
well-aligned strategy with these firms, according to Cerulli.
The report is available for purchase by contacting CAmarketing@cerulli.com.