small fish chasing big fish on chalkboard drawing Contrary to most deals, the smaller of the twofirms — PCS Retirement — was the acquirer, in this case of AspireFinancial Services. (Photo: Shutterstock)

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

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

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

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

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

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

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

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

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The latest acquisition in the retirement plan recordkeepingbusiness follows several years of marked activity. Analysts foreseefurther consolidation in a crowded market going forward.

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But according to recent analysis from McKinsey & Co., manyof those deals have not met presumed accretion, as acquirers havemiscalculated the difficulties to integrating technologies andtalent.

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

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

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

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

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Like other larger mergers—think Edelman Financial and FinancialEngines—Klein and his team intend to leverage technology to delivermore fiduciary, tailored, bespoke investment direction to saverswithin small retirement plans.

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

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

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

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

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

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SECURE Act

The Setting Every Community Up for Retirement Enhancement, orSECURE Act, has several provisions designed to acceleratesponsorship of retirement plans among small businesses, andincentives for existing small plans to adopt the automatic featuresnow common in large plans.

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But the fate of the bill is not as certain as it was when itpassed out of the House of Representatives by a nearly unanimousvote 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 tobe attached to a must-pass spending bill this fall.

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

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Encouraging sponsors in the small market to adopt automaticenrollment and escalation features has been a hard sell, saysKlein.

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

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The tax credits in the SECURE Act that encourage reenrollmentwith automatic features would go a long way to close the retirementsavings gap, thinks Klein.

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

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READ MORE:

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More recordkeeper M&As comingdespite ’spotty’ history of capturingefficiencies 

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Parsing procrastination on auto-enrollmentdefault rates

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Financial wellness programs give recordkeepersholistic opportunity

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.