SageView's reported exploration of a sale has major implications for the retirement plan adviser merger and acquisition market and the defined-contribution industry overall.
As the second-largest independent retirement plan adviser aggregator and the last independent platform, Sageview is unlikely to be purchased by an existing DC aggregator, with Captrust declining to bid. It is more likely that one of the many private equity firms flush with cash will gobble up SageView.
The firm has more than $100 billion in DC assets, established offices throughout the country and a well-formed platform and RIA, making it attractive to larger PE firms. The alternative is trying to cobble an entity through multiple acquisitions. As a result, SageView’s valuation will likely be similar to the recent Captrust deal.
The COVID-19 crisis appears to be having little effect on RPA M&A activity and might actually have spurred sales and valuations as a result of the convergence of wealth and retirement.
If SageView is purchased by a PE firm that's new to the advisory business, there will be another buyer in the market to compete for the purchase of attractive RPA practices. If that PE firm also owns wealth managers, the ability to cross-sell to the estimated 1 million SageView plan participants could happen literally overnight. If not, there is a lot of runway for the new SageView entity to aggressively buy wealth managers, following the Captrust model.
While we think of consolidation within each separate industry segment, ultimately there could be one firm that owns or tries to control record keeping, advice, asset management and distribution -- the same way that two of the most successful providers, Fidelity and Vanguard, built their businesses and continue to operate to some degree now.
Empower Retirement seems headed in that direction with the purchase of Personal Capital -- Empower CEO Edmund Murphy mused at an RPA Roundtable in 2018 about the possibility of buying an aggregator.
At the same time, large aggregators are working their way through the second of four phases of the consolidation curve, a phase that's characterized by many acquisitions. We will likely see larger firms folded into a few behemoths in phase three of the curve, which is what record keepers are currently experiencing.
RPAs are closest to the client, having better relationships not just with plan sponsors but also with participants. That makes them more influential than record keepers and certainly defined-contribution investment-only managers. RPAs may be able to create their own full-service businesses, using pooled employer plans and fintech record keepers that are willing to privately label their services and share data. Through managed accounts, target dates and white-labelled strategies, RPAs can generate additional revenue and control investment strategies, acting as a 3(38) fiduciary.
But don’t count out DCIOs that have been passively distributing their products through RPAs, record keepers and broker dealers. DCIOs now see advice as the next step in the evolution of the money management business. That evolution began with selecting stocks, graduated to the creation of mutual funds and is now headed toward data-driven, technology-enabled customized strategies.
Though their margins have declined with the move to index funds and CITs, DCIOs still enjoy the greatest profitability of any DC provider. And most are affiliated with larger firms flush with cash and investment professionals.
We will look back at this time in the RPA industry as a watershed moment punctuated by SageView’s reported plan for a sale, Captrust’s PE funding, and the emergence of Hub and OneDigital in the retirement advisory business, with four massive benefits and property and casualty firms (NFP, Marsh & McLennan, Lockton and Gallagher) lurking.
It's game on for the most attractive 750 RPA firms and cascading levels of RPAs, all the way down to the wealth managers who might want to sell or partner with an RPA firm eager to grow.
Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’ RPA Convergence newsletter.
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