Record keepers roll on despite challenges posed by pandemic

Updated with correction

Despite all the business disruptions the pandemic caused their plan sponsor clients, record keepers have nevertheless been able to post solid asset growth, buoyed they say by positive net flows and to a lesser extent market gains.

For the 12 months ended Sept. 30, record keepers saw their assets swell to $8.21 trillion, up 9.6% from $7.49 trillion in 2019, according to Pensions & Investments' latest survey of record keepers. That's up 51.5% from the same period in 2015.

Empower Retirement, Voya Financial Inc., and Fidelity Investments Inc. — the biggest asset gainers among the six largest record keepers — attributed the growth to everything from great online tools and overall service to participant outreach, better technology and even smart digital design.

"Smart design in terms of how digital displays are set up drives measurable improvement in retirement savings," said Heather Lavallee, Voya's Windsor, Conn.-based CEO of wealth solutions.

The design of websites and mobile apps, including the choice of color, language and even the election button "can have a significant impact on overall plan contributions," she said.

Voya, the sixth-largest record keeper by asset size, had $423.5 billion in assets as of Sept. 30, up 21.6% year-over-year, the second largest asset gainer among the top six. The strongest gainer — Empower Retirement, the second-largest record keeper with $883.5 billion — posted a significant 39.9% jump in assets from $631.7 billion the year before.

Meanwhile, reigning top record keeper Fidelity Investments grew at 14.4%, bringing its total assets to $2.58 trillion, up from $2.25 trillion in 2019.

The healthy growth comes as record keepers merge or look to acquire other firms, a move that allows them to build scale and thereby lower their fees.

"I think as pricing pressure continues, we're going to see more record keepers need to keep their participant count numbers high enough in order to spread all of their fixed costs," said Jamie McAllister, senior vice president on Callan LLC's defined contribution team in Chicago.

Indeed, the pricing pressure led Empower to acquire the retirement plan record-keeping business of Massachusetts Mutual Life Insurance Co., in a deal that closed on Jan. 4 following its announcement in September. Empower also closed on buying the record-keeping business of Fifth Third Bank in November. More recently, it scooped up part of Truist Bank's record-keeping business, a transaction it completed in February. Ascensus bought the other part of Truist Bank's record-keeping unit in March. Empower retroactively included MassMutual's assets as of Sept. 30 in its survey response.

"Over the last several years now, there has been a steady volume of industry transactions and that's going to continue," said Edmund F. Murphy III, Empower's Greenwood Village, Colo.-based president and CEO, citing a statistic he likes to use to illustrate the degree of record-keeper consolidation. An Empower analysis of industry data showed that the top five record keepers in 2020 accounted for a 58% share of the market, up from 43% in 2012, he said.

Acquisitions can certainly bolster a record keeper's market position. Empower's acquisition of MassMutual's record-keeping business, for example, solidified Empower's No. 2 spot, widening its lead over TIAA-CREF, which had $656.5 billion in assets as of Sept. 30, according to P&I data. The deal brought 2.5 million participants in 26,000 workplace retirement plans to Empower's platform and boosted its assets by roughly $167 billion.

Still, Empower's Mr. Murphy maintains that the company's growth has mostly been "organic," meaning it was driven by retirement plan "wins" from competitors as well as more contributions going into existing plans. Mr. Murphy noted that for the 12-month period ended Sept. 30, Empower took in approximately $110 billion in new client commitments, which included new 401(k), 457(b) and 403(b) defined contribution plans of all sizes.

"None of that came through acquisitions," Mr. Murphy said. "That was all organic."

Voya and Fidelity, too, say their growth has been organic. Fidelity, for instance, added about $115 billion in new assets to its 401(k) and 403(b) platform last year, said Bob Salerno, senior vice president at Fidelity in Boston. "We generally haven't done acquisitions of other record keepers," he said.

Voya's Ms. Lavallee also attributes the company's asset growth mostly to its sales efforts. "We had several large record-keeping wins in the corporate space as well as in the government space that brought in close to 600,000 net new participants," she said.

Each of the three asset gainers gave different reasons for their success in growing organically. Voya said that its growth was tied to the fact that it serves all size plans from the smallest up to the largest.

"We've seen the capabilities that we continue to invest in is really resonating in all size markets," Ms. Lavallee said.

Empower's Mr. Murphy also attributed the company's asset growth to its ability to compete in all markets but added that technology also played a role. The company "invested a lot in technology both on the front end" for its customers and "on the back end in terms of infrastructure and data security," a factor that Mr. Murphy said helped drive Empower's growth.

Fidelity similarly chalked up its success to its technology and user experience. The record keeper's heavy investment in technology helped "keep the people's data secure," while also "providing for an excellent user experience when people log into a web-based channel," Mr. Salerno said. He declined to disclose how much the company invested in technology, saying it does not publicly provide the data.

Other record keepers are also using technology in new ways to gain a competitive edge. Vanguard Group Inc., the fourth-largest record keeper with $592.7 billion in assets as of Sept. 30, last year partnered with Infosys Ltd. of India to deliver what it called a "technology-driven approach to plan administration." The deal essentially outsources Vanguard's record-keeping technology operations to Infosys.

John James, managing director and head of Vanguard Institutional Investor Group in Malvern, Pa., said the relationship will allow Vanguard to evolve its record-keeping capabilities and platform to a "fully cloud-based solution" that has already yielded positive results, including the rollout of a new participant website featuring behavior-based navigation.

"Our agile approach to the new participant site means that we'll continuously roll out new functionality and tools throughout 2021 and beyond," Mr. James said.

To drive growth going forward, record keepers are also broadening their services beyond retirement plans and plunging into financial wellness initiatives. The need for record keepers to differentiate themselves amid ongoing downward pressure on pricing is leading many companies to "come up with more enhanced services," Callan's Ms. McAllister said.

"We've seen a lot more focus on financial wellness in general," she said, adding that services can range from "basic financial wellness education and guidance for participants" to guidance on emergency savings, budgeting and student loans.

Fidelity, for one, is ramping up its financial wellness offerings in the areas of student debt services as well as employee-giving services for plan sponsors whose participants have philanthropic interests, Mr. Salerno said. "Financial wellness and total well-being are key areas for us," he said.

Voya, too, is broadening its services beyond retirement plan services. Earlier this year, it launched an emergency savings program for employers to add to their benefit packages and now even offers caregiver-support services through a partnership with Wellthy, an organization that provides concierge support to families with complex caregiving needs.

"We want to help employers think about the breadth of needs and issues that their employees are facing," Voya's Ms. Lavallee said.

Empower is also reinforcing efforts to provide its 12 million participants with what Mr. Murphy called a "more holistic seamless experience that transcends retirement."

"Many of our customers have other goals, whether it's college savings, emergency savings or health-care savings," he said. "The more we can help them think through that decision matrix and help them achieve the level of savings they're looking for, the better."