2016
Recordkeeping Survey

Art by Kevin Hong

2016 Recordkeeping Survey: Bigger Pond. Bigger Fish.

As the industry grows, recordkeepers both large and small face continuing pressures to evolve ... and survive.

By most measures, 2015 was a banner year for the defined contribution (DC) industry, as demonstrated by the results of the 2016 PLANSPONSOR Recordkeeping Survey. Record levels of plans, participants and assets mean that more people have now saved more money for retirement than at any point in the history of our survey. The pond, so to speak, is getting bigger.

While few would disagree that, in this case, “bigger” is certainly “better,” the market’s growth has manifested itself in another way: More recordkeeping assets are concentrated in the 20 largest providers. The big fish are getting bigger, both through organic growth and acquisitions.

This trend also highlights another market shift: The homogenization, and commoditization, of a growing number of recordkeeper services that as recently as 10 years ago might have been purely a source of added value. Now more than 95% of all recordkeepers offer services such as “signature-ready Form 5500 preparation” and “paperless loan processing; similarly, more than 80% provide 360-degree payroll integration, support fee-leveling/equalization and employ internal Employee Retirement Income Security Act (ERISA) counsel.

In response to this trend, providers have and will continue to develop new capabilities and strengths. The first evidence of this has been a commitment by several providers to an open architecture approach to investing, but this, too, is becoming commonplace, as 87% of recordkeepers now offer sponsors a choice of over 1,000 mutual funds, while 65% market over 4,000 mutual fund options.

Looking beyond traditional mutual funds, almost all providers are now capable of supporting other common investment constructs such as model portfolios (97%), collectives (90%), custom funds/separate accounts (83.1%), and self-directed brokerage accounts (95%). Only in recordkeeping of annuities (65%) and company stock (75%) does even moderate differentiation exist.

In recent years, innovation and competition have increasingly focused on improving participant services and outcomes. With more and more interactions moving online, providers have faced challenges building relationships with participants, so they have invested in solutions that better engage participants in making each of their many decisions. Sometimes the improvements are quickly absorbed into the industry’s DNA—e.g., 83% of providers now offer retirement income estimates online, and 61% also include retirement income estimates on statements—while other solutions are accepted more slowly.

The choice for qualified default investment alternative (QDIA) presents a good example of this phenomenon. Target-date funds (TDFs) have been universally embraced by the industry, and recordkeepers have raced to add the funds to their platforms—60% now offer sponsors a choice of more than 20 unique TDF fund families.

But while many (83%) recordkeepers offer managed accounts, not all do, and of those that do offer them, half give sponsors only one option.

While many of these trends play across both small and large recordkeepers, what remains to be seen is whether creating scale ultimately leads to less “local support” for participants. The diminishing status of call centers speaks to the benefits and risks of improved scale. With the increase in online interactions, providers have understandably responded by scaling back call centers. Nevertheless, in many cases call centers exhibit a distinct East Coast bias. For example, only three in 10 (30%) providers now staff call centers after 5 p.m. Pacific time. Even fewer (10%) offer any weekend coverage.

Local service has traditionally been the calling card of smaller providers, which typically have small, more regionally-based clients—allowing for more personal attention to plan participants. Some evidence of this benefit can be found in the 2016 Recordkeeping Survey data: When looking at the adoption and usage of Roth provisions among the 20 largest providers as compared with the other 40 providers, smaller firms have higher percentages of clients who have adopted Roth provisions (36% vs. 26%) and higher percentages of participants who save into Roth accounts (17.4% vs. 8.5%).

Following are profiles of a wide range of recordkeeping service providers, both large and small. Although providers are clearly ranked, according to various criteria, none of the rankings can definitively answer the question of whether bigger is better. We’ll let you decide. —Brian O’Keefe