What Is Too Few?
In late July, it was announced that, despite getting approval from the European Commission, and even with Aon’s agreement to sell its U.S. retirement business to Aquiline Capital Partners and its Aon Retiree Health Exchange business to Alight, the proposed merger of Aon plc and Willis Towers Watson (WTW) has been terminated. The proposed combination was first announced a year ago March 9, and the Department of Justice (DOJ) filed a civil antitrust lawsuit this June 16 to stop the merger.
The lawsuit alleged that the combination of Aon and Willis Towers Watson would reduce competition in key markets served by the firms, effectively consolidating the industry’s “Big Three” insurance brokerages into a Big Two—although there are many smaller insurance brokerages. In a statement after the termination of the agreement was announced, Attorney General Merrick B. Garland called it a “victory for competition and for American businesses and, ultimately, for their customers, employees and retirees across the country.”
Garland’s statement continued: “American employees and retirees rely on dependable health care and retirement plans provided by their employers. Many of those employers, in turn, rely on insurance brokers [such as] Aon and Willis Towers Watson for managing the complexities of these health and retirement benefits. Businesses also rely on Aon and Willis Towers Watson to compete for the bulk of their risk management portfolio, including property and casualty insurance. The decision to abandon this anti-competitive merger will help preserve competition in insurance brokering.”
When I read that statement, I couldn’t help but reflect on the consolidation that has gone on across the retirement plan industry. It was the same month we released our PLANSPONSOR Recordkeeping Survey, which has annually shown the contracting of the universe of retirement plan recordkeepers and the significant market share that the few largest take: The top five recordkeepers have 61.8% of the market’s assets. In fact, as we published that data, Empower added Prudential’s retirement plan business to its list of acquisitions, making our survey immediately outdated—and leading to the largest two recordkeepers, Fidelity and Empower—including Prudential—administering 43.6% of the market!
On the advisory business side, when I started as a reporter, I would write about the few big wirehouses, and it seems like we are witnessing the creation of something similar on the registered investment adviser (RIA) side. Also in July, CAPTRUST Financial Advisors announced the firm’s 50th acquisition since 2006, adding another $2.1 billion in assets under management (AUM), while Hub International added $4.6 billion in an acquisition, and SageView brought on $17 billion in client assets in a separate acquisition. The month prior, OneDigital also added to its AUM in an acquisition of an advisory group with $6 billion in client assets.
As we at PLANADVISER speak to merger and acquisition (M&A) experts around the industry, everyone seems to agree that the pace is likely to continue. This will result in “highly scaled, centrally managed, well-capitalized and broadly focused firms, many of which are rapidly buying the best performing firms in local geographies,” reported John Manganaro on planadviser.com.
Now, none of these are at the same level as the scuttled Aon–Willis Towers Watson deal, yet. But, as I reflected in Garland’s quote about the need to preserve competition, I couldn’t help but wonder when this question will come up in our industry: What will be the sign that an advisory firm or a recordkeeper is too big? And when is it time to step back and ensure that plan sponsors and participants are still getting the best services, pricing and options for them, not what the big firms are willing to offer?