GoldK's Buying Binge Highlights e401k Hurdles

For example, GoldK has acquired three third party administrators in the last year with the announcement of the addition of Paradigm Financial Corporation last week. Earlier this year, the online provider of 401(k) plans added the retirement plan services division of Gallagher Benefit Services and A.C.G. Associates.

Troy Shaver, vice chairman of GoldK, told PLANSPONSOR.com that the acquisitions are tools for building a broader TPA network. In fact, he says, they serve a dual purpose.  GoldK’s acquisitions have brought on experienced professionals and have furthered distribution channels. Not to mention it has brought the firm a number of new clients.

Buying Expertise

“Through our acquisitions we have been able to add highly qualified people to our operations,” said Shaver. “Highly qualified investment professionals come at a premium and it has been difficult to find them in our area. Most of our acquisitions have been completed near major distributors. All of our acquisitions are done with brokers and they represent a major distribution channel for us.”

But while Shaver admits that this is the goal, the acquisitions themselves seem to be implying otherwise. Gallagher Benefits and A.C.G. Associates where typical small TPAs, they performed their own recordkeeping services. Paradigm, according to its president Scott McKnight, acted as administrators and consultants to its plans but outsourced its recordkeeping responsibilities to other vendors.

Now that GoldK has acquired it, McKnight says the firm will be operating as GoldK’s consulting arm. This might infer that GoldK is growing beyond its e401k model as it sprouts roots in critical areas of the 401k arena: traditional recordkeeping and consulting.

Reevaluation

Andrea Ellis, second vice president, retirement and investment services at The Principal Financial Group, said many e401ks have had to reevaluate their ability to serve their core market.

“I don’t think the concept that small business owners were all “do it yourselfers” is panning out,” said Ellis. “Other pieces need to be in place. [e401ks] need to take a full service “we do everything” approach as well as have traditional distribution channels to move into a leadership position in this marketplace.”

“Initially, to get into this marketplace [companies] had to compete from a cost standpoint,” she continued. “We saw a lot of competitors eliminating services; there was no 800 call number or no ongoing enrollment effort [for example]- all of these were services that became available on the Web,” Ellis said. “What you’ve got is a second rate retirement plan and we found that not only do small and medium-sized sponsors not want second rate services, they want the same confidence in their investment choices and services that they would find at a traditional provider.”

Ellis says sponsors who consider the services of an e401k provider have to be realistic about the firm they build a relationship with.

Right Direction

“[Retirement] is a long term deal,” she said. “A sponsor has to know that the provider they’re dealing with is going to be around for the 40 years or so that it takes to reach retirement. To make this decision, sponsors should look at the models of the service providers out there and choose one based on the carrier’s approach to meeting their needs.”

For Paradigm’s McKnight, GoldK’s acquisition of his firm is a step in the right direction.

“As far as our sponsors are concerned, there’s really no downside for them whatsoever, the only thing they’re going to see from our relationship with GoldK is the upside,” he said. “The new technology will make us run more efficiently. No one is going to be forced to change any relationship they might have with a vendor. Instead they’ll be looking at a more cost-effective service.”

– Nicole Halsey          editors@plansponsor.com