The question of how recordkeeping industry consolidation has impacted the daily work of retirement plan advisers has remained top of mind since Principal’s acquisition of Wells Fargo Retirement and Trust—a deal ranking among the largest recordkeeping industry M&A transactions on record.
Even before the Principal-Wells Fargo deal grabbed headlines, the topic of recordkeeper M&A activity has been on the radar for nearly a decade. Indeed, some industry watchers say the ball started rolling when MassMutual snapped up The Hartford’s retirement plans business in September 2012. Soon after that came the announcement that Transamerica Retirement Services and Diversified—both owned by parent company Aegon—would become a unified brand under the Transamerica Retirement Solutions heading.
Against this backdrop, the announcement that PCS Retirement, LLC (formerly known as Professional Capital Services, LLC) will acquire Aspire Financial Services almost seems inevitable. According to Mark Klein, CEO at PCS who will maintain the title of CEO for the combined organization, these two companies “grew up together.”
“Pete Kirtland [CEO of Aspire] and I have known each other for many years,” Klein tells PLANADVISER. “He was the guy who actually sold us our first recordkeeping system, InvestLink. In that sense, we’ve been friendly, and sometimes not so friendly, competitors over the years. We are thrilled that our combined, 300-person organization will continue to provide conflict-free recordkeeping services to 16,000 plans and 750,000 eligible participants representing more than $23 billion in assets under administration.”
Together, PCS and Aspire will serve thousands of financial advisers, strategists and third-party administrators (TPAs) across the United States, Klein adds.
Reflecting on the benefits of merging the organizations, Klein says PCS brings to the table its history as “the first recordkeeper to offer advisers a prospecting engine and benchmarking toolkit.”
“We are also now leading the charge in integrating with wealth management platforms, enabling advisers to have a holistic view of all assets, retirement and non-retirement,” Klein says. “Aspire, on the other hand, was the pioneer in flat-fee pricing, choice architecture and a best-of-breed service delivery model. For the non-ERISA and ERISA qualified plan markets, as well as the individual end market, the combined platform is now uniquely aligned with legislative tailwinds in favor of the establishment of retirement plans by small companies and growth in automatic enrollment.”
Inside Details of the Deal
According to Klein, once it became clear that Aspire’s leadership was considering selling the practice, the firm attracted the attention of a number of bidders—“quite a few actually.”
“In the end, the management at Aspire felt like this was the right spot for them, joining PCS,” Klein says. “As soon as we heard they were interested, we jumped all over it from our side. The interaction between the firms has been fantastic so far. We’ve never done a deal of this magnitude before, nor have they, but we can see already that everyone is really looking forward to learning from each other and doing everything we can to make the new collaboration successful. We have encountered and resolved similar issues as firms, so there is an immediate familiarity from one team to another.”
Klein adds that his firm has “invested a lot in measuring key performance indicators and in building out the customer relationship management solutions featuring automated workflows.” He says Aspire, on the other hand, has “done a lot more on the individual account side.”
“PCS has done a lot that can complement them on the fiduciary support side,” he adds. “With the complementary capabilities, the hope and expectation is that 1 plus 1 is more than 2 in this case. Furthermore, there are expense synergies and revenue synergies that we foresee coming pretty soon right off the bat.”
In terms of new areas of focus for the combined entity, Klein says he expects “data sharing” will be a focal point for innovation.
“We want to be on the forefront of technological developments in the industry,” he says. “We have a new adviser portal that is responsive that we are going to be rolling out soon, for example. We will continue to be platform agnostic and will be able to pull in data from the InvestLink system. Our goal is really to be able to express all of the adviser views and workflows through one portal, as soon as we can. That’s job No. 1.”
Finally, Klein highlights that Aspire has an established a presence in the K-12 403(b) plan space and the 457 plan space.
“We see that as a green pasture that is really in need of the types of solutions we offer, which are low-cost and fund-agnostic,” Klein says. “We’re really excited about the opportunity to enhance these offerings and seeing what we can deliver to these new markets.”
Optimism About the Future
Bob Francis, known currently for his consulting role at Wise Rhino, has been a member of the Aspire board since 2011. From his perspective, he says he is quite optimistic for the prospects of the combined PCS-Aspire organization.
“Recordkeeping is a business that requires scale now more than ever,” he says. “In daily valuation recordkeeping, there could not be a truer statement to make. So, their coming together makes a lot of sense and it allows them to make a much more efficient and stronger enterprise. It’s a large acquisition for PCS, so they are clearly taking the scale play very seriously.”
According to Francis, the new combined entity will have a suite of solutions and services that will stand out as unique, even from some of the very largest recordkeepers also making a play for scale.
“This deal puts PCS and Aspire in a unique situation,” Francis says. “They are big enough now to get the real benefits of scale, but they remain nimble enough to do things and made decisions that can be much harder for the largest platforms—with all of their legacy systems and all of their downstream inertia.”
One other aspect to comment on is the approach to fees and transparency, Francis adds.
“The ability to charge participant-based fees is almost a must-have characteristic in this environment,” Francis suggests. “The notion of charging basis points for assets as a recordkeeper—it’s just so antiquated to the point that it’s almost indefensible, quite frankly. The PCS and Aspire platforms were built from the start on this idea—on transparency and not on an asset-based pricing model. They were really ahead of the curve and that has allowed them to get traction with a very distinct element of the fiduciary advisory community. They are aligned with this community.”