DC record-keepers hope less is more

PALM BEACH, Fla. – Facing renewed pressure to cut fees amid already razor-thin margins, the record-keeping business is doing all it can to streamline what it does.

Just how best to move forward in accomplishing that was the topic of one of the panel discussions Monday at the 2013 Society of Professional Asset-Managers and Record Keepers meeting.

The push represents yet another overhaul of the industry, a shift designed to wring new efficiencies out of a business that spent years trying to scale up but found itself trying to do too much with too little.

“Fee compression” isn’t the only pressure record keepers are facing. The industry — which reported an all-time high of $4.45 trillion in assets in the latest survey — has been in consolidation mode for years.

“We were at a point (several years ago) where we decided it’s time to step back and question what we’re all doing,” recounted Eric Levy, a senior vice president at Lincoln Financial Group.

What Lincoln uncovered was that it couldn’t clearly define all that it was offering, he said.

“It was anything a client asked for,” he said. “And more scarily, it was anything a prospect was asking for. When you have a sales environment in which there wasn’t an RFP that the sales team didn’t fall in love with, we decided we needed to change.”

That change primarily has meant stripping down Lincoln’s service catalog to a more manageable 3,000 or so lines of items it can do. That’s still a “daunting” figure, Levy acknowledged, but Lincoln has created a point system that it uses to help communicate to clients which services it does better than others.

Teresa Dennehy, a managing director at TIAA-CREF, shared a similar account.

You can’t have infinite variability with finite resources,” she said.

Changing regulations, she said, helped bring a new level of discipline and so, instead of client demands driving its product line, the firm moved to become more strategic about its offerings.

“We now ask do we have the right resources, with clear roles and a clear framework,” before committing to a client, she said.

Christine Skatchke, a vice president at Wells Fargo Institutional Retirement & Trust, said record keepers have been “chasing scale” for years but without giving proper thought to the bigger questions of costs and competence.

Now, with fee compression and consolidation in the industry, “no one wants to pay for the flexibility we built,” she said.

The move to streamline, she said, has helped instill confidence in the company’s salespeople. “They’re not just saying yes to anything. They now know why they’re saying yes.”

Levy said it’s important for any firm hoping to go through this process to establish boundaries. “Sales always will find a reason to do the exception,” he said. “And you have to say, no, this is what we’re doing. We have solution specialists who can help in terms of governance, to help get it right with new clients and then follow up with existing clients.”

Dennehy suggested that record keepers pushing to streamline their offerings solicit plenty of feedback from all parts of their organizations, especially operations and client services units.

Resistance to this sort of change should be expected, Levy said.

“It was all viewed as bureaucrat and putting in new authority levels. But it’s about transparency. I equate it to a merger and acquisition. You know you need to ask a lot of question, review a lot of documents. Like an M&A deal, we are acquiring the right to service that business for a period of time. You need to have a regimented process and understanding whether you’re a good match for that client.

“We’d rather tell a prospect we’re not a good fit early on,” he said. “Why chase deals that never come to fruition or that you end up winning but for which you’re a bad fit?”

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