small fish chasing big fish on chalkboard drawing

Were there a retirement industry award for most laid-back cat, Mark Klein would make a solid nominee.

Klein, CEO of PCS, a recordkeeper specializing in the small plan market, recently closed a deal to acquire Aspire Financial Services, a competitor in the small plan market.

Contrary to most deals, the smaller of the two firms acquired the larger.

PCS serviced 2,327 plans in 2016, with 2,144 of those holding under $5 million in assets, and had a total of $4.8 billion in assets under administration, according to PlanSponsor’s 2017 Recordkeeping Survey.

Aspire serviced 13,321 plans in the same space, with 12,722 under the $5 million threshold, with total AUA at $14.7 billion.

Together, the firms represent about 16,000 plans with 750,000 participants and about $23 billion in AUA.

“We’ve absolutely grown up with these guys,” said Klein, who will serve as CEO of the combined entities. “I’ve known Pete (Kirtland) for years—we’ve always had a shared vision to offer a conflict-free platform.” Kirtland, Aspire’s previous CEO, will stay on as part of PCS’s senior management team.

“We both have always believed in the open architecture platform and full visibility, which is a necessity if you are supporting an advisor’s fiduciary mandate,” he added. “At the end of the day, we are agnostic on investment offerings, and that’s the great advantage we offer plan advisors. Our platform allows them to build their own brands, not Vanguard’s or Fidelity’s”

The latest acquisition in the retirement plan recordkeeping business follows several years of marked activity. Analysts foresee further consolidation in a crowded market going forward.

But according to recent analysis from McKinsey & Co., many of those deals have not met presumed accretion, as acquirers have miscalculated the difficulties to integrating technologies and talent.

“A number of challenges can be easily underestimated, and solving them can be more complex and expensive than what deal teams might have anticipated,” Alexander D’Amico, a partner in McKinsey’s financial services practice, recently told BenefitsPRO.

“The ability to significantly impact cost improvements has been more difficult than presumed,” he added.

Klein acknowledges there is work ahead. But he’s cucumber cool when asked if he and his team are up to the task.

“Any integration of this scale is a lot of work,” he said. “And I could absolutely see challenges if we had a different market focus. We don’t. We’re very much aligned. We have no agenda, and no funds to push. There’s no conflict there. We’re fundamentally focused on the same business.”

Like other larger mergers—think Edelman Financial and Financial Engines—Klein and his team intend to leverage technology to deliver more fiduciary, tailored, bespoke investment direction to savers within small retirement plans.

“Much of the existing technology each brings to the table is complimentary,” said Klein. “Aspire brings a focus on the individual side. You can have a plan-based system, which we have, and an individual account system—we now have both.”

Still, by some thinking, small plan specialist recordkeepers are chum in the water for larger prey, destined to be swallowed by big providers with superior technology and participant support.

Klein dismisses the characterization. Technology has evolved to allow providers to small plans to offer platforms on par with the largest recordkeepers, he says.

And pricing pressure at the top of the market has trickled downstream, getting more value to participants in small plans.

“At the end of the day, everything is reasonably priced. Even annuity providers have come down with their recordkeeping costs. It’s been a great trend that’s benefited us and our clients. We’re in a fortunate position—it’s a great inflection point in our industry where technology is going to continue to deliver value to sponsors and savers,” said Klein.

SECURE Act

The Setting Every Community Up for Retirement Enhancement, or SECURE Act, has several provisions designed to accelerate sponsorship of retirement plans among small businesses, and incentives for existing small plans to adopt the automatic features now common in large plans.

But the fate of the bill is not as certain as it was when it passed out of the House of Representatives by a nearly unanimous vote in May. It failed to pass by unanimous consent in the Senate. It’s now expected that if it is to pass this year, it will have to be attached to a must-pass spending bill this fall.

“At the end of the day, we have to get people saving,” said Klein. “The question is how.”

Encouraging sponsors in the small market to adopt automatic enrollment and escalation features has been a hard sell, says Klein.

“Our team engages that conversation all the time. You walk sponsors through all of these studies that show the power of inertia, and that people tend not to opt out of saving when auto-enrolled. But small business owners are reluctant to take that approach. They tend to say they’d rather just leave the decision to save up to the individual,” he explained.

The tax credits in the SECURE Act that encourage reenrollment with automatic features would go a long way to close the retirement savings gap, thinks Klein.

“It would be unfortunate if it did not get passed,” he added.

Parsing procrastination on auto-enrollment default rates

Financial wellness programs give recordkeepers holistic opportunity

Instant Insights /

Latest recordkeeper mergers show small providers are still in the fight

More From HR Executive

Related Stories

Recommended For You