Deals & People March 17, 2022

M&A Update: Pensionmark Acquired by World Insurance Associates

The acquisition will bring some $80 billion in assets from across the Pensionmark network to World Insurance Associates, a national full-service insurance brokerage firm.

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The pace of retirement plan adviser industry mergers and acquisitions shows no sign of slowing in 2022 despite some emerging economic headwinds, with the latest landmark deal being announced by World Insurance Associates and Pensionmark.

On Thursday, news emerged that World Insurance Associates LLC has entered into an agreement to acquire Pensionmark Financial Group, the large national network of retirement and financial planning registered investment advisers. According to the announcement from World, Pensionmark currently supports more than $80 billion in assets across its network.

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The comprehensive transaction includes Pensionmark’s Advisor Support Platform, the Pensionmark Financial Group registered investment adviser and the Pensionmark Securities broker/dealer. The Pensionmark entities consist of more than 300 retirement plan specialists, financial advisers and staff.

Headquartered in Santa Barbara, California, Pensionmark has more than 65 locations in the U.S. The financial details of the transaction were not disclosed, but in conjunction with the acquisition, many existing Pensionmark advisers will become equity owners in World, which will enable them to participate in the future stock price appreciation of the combined business.

“Pensionmark is a natural fit with World since we both have the same value proposition for our clients and partners—provide a quality personal experience combined with large-scale resources,” says Rich Eknoian, World’s CEO. “The synergies between our two firms are undeniable. I am delighted to welcome the Pensionmark team to World and look forward to offering our clients and our acquisition partners an unparalleled experience.”

Troy Hammond, CEO of Pensionmark, echoes the sentiment.

“When we developed our adviser transaction model, we intentionally created a unique dynamic where an advisor could become an equity partner of a larger collective while maintaining ownership of their business,” he explains. “When entertaining our acquisition partner, we sought a firm that was committed to enhancing our platform, accelerating our growth and maintaining the team and culture that makes Pensionmark special. I know World is exactly that partner and I look forward to an exciting future for our clients and advisers.”

Michael Woods, president of Pensionmark, says his firm’s new partner is growth-minded and offers a suite of complementary verticals, including employee benefits, business insurance, payroll and human resources solutions.

“Employers are looking for our advisers to deliver more than just financial advice,” Woods says. “The ability to provide top-tier solutions for all our clients’ needs will prove to be invaluable for our clients’ growth, our advisers’ growth and our own growth.”

These comments about bringing advisory firms and insurance carriers closer together echo those made by other firms and industry executives who have entered into M&A transactions in recent years. According to Wise Rhino Group, which supported Pensionmark in the new transaction, insurance firms are arguably the best positioned to integrate retirement advisory firms, as most have established operating companies and have coveted growth currency in the form of employee benefits and property-casualty referrals.

Moving forward, Hammond will lead the financial services initiatives for World to continue to enhance the company’s suite of client offerings. He and the Pensionmark advisers will partner with Jennifer Barton of World’s employee benefits practice to offer a comprehensive total rewards solution for employers.

Another party with an interest in the transaction is CAPTRUST, which back in 2015 established a strategic partnership with Pensionmark that saw the launch of a joint-owned RIA enterprise.

Asked for comment on World’s acquisition of Pensionmark, Ben Goldstein, CAPTRUST president, offered the following statement: “In 2015, CAPTRUST completed a transaction that included a minority investment in Pensionmark’s affiliate business, now known as the Pensionmark Retirement Group, plus the full acquisition of Pensionmark’s advisory business. At this time, we are divesting our investment in PRG, but will retain the advisory business located in Santa Barbara, California. We are thrilled with the great work and leadership of Troy Hammond and Mike Woods and the stellar investment returns PRG delivered to CAPTRUST shareholders. Further terms of the transaction are not being disclosed.”

Data & Research March 16, 2022

Small Plan Fee Considerations

The expenses paid by the smallest plans have dropped over the years, but they still pay more on a percentage basis than their larger counterparts.

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New data from the recently released 22nd edition of the “401k Averages Book” shows that although average total plan costs and investment fees for 401(k) plans continue to decline overall, fees for small 401(k) plans are still higher than those of larger plans.

Total investment costs declined between 0.01%-0.06% from last year, with an average decrease of 0.03%, according to the book. Large 401(k) plan (1,000 participants/$50 million in assets) fees declined from 0.90% to 0.88% over the past year and were down from 0.95% in 2017. Small retirement plan (100 participants/$5 million in assets) fees declined from 1.20% to 1.19% over the past year, down from 1.25% in 2017, the book of averages found.

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Comparing the two, smaller plans are paying about 30% more in fees than larger plans. Additionally, the book of averages found that plans with smaller average account balances pay more than those with larger balances. A $20 million plan with 2,000 participants has an average total plan cost of 1.19%, while a plan with 200 participants and the same level of assets has an average total plan cost of 0.94%.

In 2019, when the most recent data sets were available, there were 649,000 small 401(k) plans, which Morningstar defines as programs that hold $25 million or less in assets, says John Rekenthaler, Morningstar research vice president, in a recent blog post. Those plans hold 27% of the nation’s 401(k) assets.

On average, Rekenthaler says that small-plan participants pay slightly more than double the fees than those who invest through larger companies. This is in large part a result of administrative fees, which are six times higher than those paid by larger plans, according to Morningstar.

Historically, smaller plans tended to have higher fees because they were built around a brokerage account framework, where the fees paid were primarily coming out of the plan investments, says Andy Harper, LPL Financial senior vice president. If an adviser is paying a flat fee across the board, it can look like smaller plans are paying higher fees from a percentage standpoint.

To help mitigate higher costs, companies can choose to use multiple employer plans, Harper says. There is also the option to use a pooled employer plan, which is relatively new and came from the late 2019 passage of the Setting Every Community Up for Retirement Enhancement Act.

In some cases, there is also the option of working with a professional employer organization.

“What these entities do in basic terms is aggregate plans, and some of these smaller plans can join in,” Harper says. “Due to economies of scale, they could pay less.”

These various options, Harper explains, can help small plans pay lower fees for recordkeeping and third-party administration services. Plans may also be able to save on audit costs, if they’re required to do an audit, and for the support of a financial adviser.

Another factor to consider is the importance for advisers and service providers to understand what small plans are looking for so they are not paying extra for things they don’t need. As with all plans, small plans should also benchmark the overall expenses regularly and review investments to make sure they are in the right share class as the plan grows and evolves.

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