Plan Providers Emphasize Need for Nimble Tech, Greater Scale

Retirement plan recordkeepers describe plans to dramatically ramp up scale and double down on new technologies that support efficient growth and client service.

Chad Parks, founder and CEO of Ubiquity Retirement and Savings, is not the kind of business leader that likes to keep his company’s goals and aspirations hidden, nor does he shy away from acknowledging challenges the firm and its competition face.

Speaking recently with PLANADVISER, Parks offered a frank and refreshing take on the defined contribution (DC) plan recordkeeping marketplace, with a particular focus on the issues facing providers, like Ubiquity, specializing in serving small- and micro-plans. For Ubiquity, the current outlook is optimistic, Parks says, but there is also an understanding that fundamental challenges are on the horizon.  

At a very high level all recordkeepers are facing real pressure from fee compression, he observes, and the perception, which he calls unfounded, of the increasing “commoditization” of all manner of recordkeeping services. Related to both of these points is the demand to constantly improve and reassess technology offerings and other touch-points for plan sponsor clients, who are being driven by concerns about their own fiduciary liability to demand more than ever from their recordkeepers—and at lower price points.

Parks says he is proud that his firm has been able to continue to grow through these challenging conditions. 

“A lot of people will tell you that there is no way for the providers to continue to make money, long term, serving this space,” Parks says, “and so they do not even attempt to work with small plans. Our counterargument is, that’s almost right, but you have to be able to scale up on the provide side and get to that large and sustainable number of small plans. It’s not a get-rich-quick business, from that perspective. You make a little bit of money on a lot of plans—that’s the strategy.”

Parks adds that, even with the strong barriers to entry in the DC recordkeeping space, there is now more competition than ever. “We welcome that,” Parks says. “The new entrants know, like we do, that there is a market here that deserves top quality service. Other people are recognizing that and it’s a good thing, because no single provider can solve the retirement readiness problem.”

NEXT: Big plans and big challenges 

Parks suggests one source of his optimism about Ubiquity’s future is “the interesting path we have taken on the technology picture.”

At the start of the company’s lifetime Ubiquity leveraged an early generation SunGuard platform, then moved on to a provider called InvestLink, before returning to use Relius, another version of the SunGuard product “that had grown up a little bit,” as Parks puts it. Throughout this evolution, he explains, Ubiquity had also updated its own proprietary platform solution more than a few times.

“Even with all of the third-party solutions and our own in-house work, we were never quite satisfied with what we had on the back end,” Parks says. “So back in 2012 and 2013 we started the work of fully redesigning our next generation platform … to really start from scratch using fresh architecture and brand new data technology. Making it API compatible was especially important to facilitate the sharing of data behind the scenes, for example.”

At the same time this internal development work was going on, the firm “looked one more time at everything that was available right now in the marketplace.”

“We even went deep with two licensed platform providers into the RFP process,” Parks says. “But in the end, either their systems were too complicated and couldn’t be simplified for our approach that we feel works well for small- and micro-plans, or there was not enough under the hood to make us feel fully confident in what our offering would look like.”  

And so finally the decision was made “to close the gap on our own and to go 100% proprietary.” This added about 18 months to the technology development cycle, Parks admits, “but it opened up a whole new path forward for us.”

Parks says the firm is now offering its proprietary platform as a licensed solution for independent third-party administrators (TPAs) and recordkeepers “who are suffering with limitations in their own platforms the way we did.” Obviously the licensing fees benefit the business, but Parks suggests this expanding business line is also about “fostering cooperative competition.”

“We believe we have created a great platform and we want others to be able to use it and increase the reach beyond what we could ever do on our own,” he concludes.

NEXT: Ascensus also sounds optimistic note 

It is interesting to juxtapose Parks’ commentary with those of Raghav Nandagopal, executive vice president of corporate development and mergers/acquisitions at Ascensus, who also recently sat down with PLANADVISER to talk shop.

Nandagopal says Ascensus’ growth strategy also very much involves either developing or acquiring the best technology possible. Beyond this, “our growth strategy is predicated on a few fairly straightforward things.”

First, Ascensus is “closely focused on expansion in our core market segments, which are the DC recordkeeping space and the 529 college savings plan administration area. We are seeing a lot of growth opportunity and acquisition opportunities here.” The theme is that fees associated with these business lines have been crunched in recent years, and so growing significantly in scale is seen as a necessity for protecting profitability. And what is the most direct way to build scale while maintaining quality? Buy businesses that are already well established but are smaller and even more threatened by the fee compression.  

“Expanding health solutions capabilities and tying this into retirement solutions is also a very important focus and growth area for us right now,” Nandagopal adds. “Health savings accounts, especially, we feel optimistic about.”

The final growth opportunity Ascensus is focused on “is the broader benefits administration space and tying all of this together for the employer.”

“If you broadly think about where the recordkeeping and TPA space is going, there is a demand for a holistic approach and to take advantage of the adjacencies that already exist between retirement plans, health plans and college savings,” Nandagopal says. “If you are an employer today and you are thinking about what you can do to recruit and retain top talent, what can you do? You can think about wages, and then you can think about benefits, retirement benefits and support for health care. More and more you are seeing a focus on student loan support and student loan payment administration from payroll. Tying all of these things together is a growth opportunities for providers like us.”

Like Ubiquity, Ascensus is optimistic about opportunities to join services with other providers to maximize the deliverable for the end clients on the ground. So for example, Ascensus is right now rolling out a collaboration with Morgan Stanley, called ClearFit, through which Morgan Stanley does the investment component, taking on fiduciary 3(38) service, while the Ascensus team continues to do the recordkeeping and administration activity. 

“This is the time for us to go to the market and work with various institutional partners to address the retirement needs of small-business employees, and other market segments as well,” he concludes. “We very much expect to continue this focus on asking, what are the other tools and technologies we could provide to the ecosystem that can help everyone manage their businesses better?”