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 significant increase.”
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.