What Ascensus purchase of Newport Group means for advisers

Like a tropical storm threatening to become a hurricane as it picks up power, record-keeper consolidation in the adviser-sold 401(k) market continues.

Last week’s announcement that Ascensus was purchasing Newport Group comes on the heels of Empower’s acquisitions of the record-keeping divisions of MassMutual and Prudential.

Ascensus was always likely to buy Newport, but the deal became inevitable when Stone Point Capital, a major investor in Newport, recently took a significant stake in Ascensus.

The new entity will be a juggernaut with $700 billion in assets, 15 million participants and 150,000 plans. It covers defined-contribution and nonqualified plans, 529 college savings plans, state plans, health savings accounts, pooled employer plans and health care. That all comes along with being the largest compliance-only third-party adviser.

Ascensus started when it was divested by ADP, becoming Bisys and eventually being bought by JC Flowers. The record-keeping business had been valued at almost nothing compared to the mutual fund and hedge fund servicing businesses and insurance agency.

Bisys started as a pure outsourcer, eventually selling directly to advisers as a no-frills, low-cost provider. It became Merrill’s main small-market provider and then that of American Funds, which left for what’s now Empower after the “Bisys crisis” — a system conversion that went wrong. Ascensus is led by well-respected industry executives Bob Guillocheau and David Musto.

Newport started in the nonqualified business and was acquired by a smaller entity that had cobbled together a number of regional record-keeping TPAs, including NextPlan (formerly Benefit Street), led by Newport’s soon-to-be-departing CEO Greg Tschider.

Known to be able to handle complicated, custom plans, Newport recently bought Pai, a micro market provider and outsourcer, and PNC’s record keeping division. It is well positioned to be a strong PEP provider, powering the recently announced Morningstar ESG program.


This deal almost certainly means that 401(k) record keepers will move to stage four of the consolidation curve in the next three years, the stage in which five to seven providers have a 70% to 90% share of the market. That will especially be the case if Voya, which has been noticeably quiet and was rumored to be in on the MassMutual and Prudential deals, buys Alight — which would double its assets.

But there are still more than 40 national record keepers, as well as over 400 regional record-keeping TPAs, not to mention well-funded fintechs like Vestwell and Guideline.

Insurance providers buy other insurers, which is why John Hancock bought New York Life, MassMutual bought Hartford, and Empower bought MassMutual and Prudential. That’s partly because of the allure of retirement income and the sale of annuities within retirement plans, as well as stable value. PE firms have to flip to another PE firm, go public or sell to another provider, as their limited partners want a return within a reasonable time frame. PE-funded rollup artists like EdgeCo Holdings will try to buy smaller entities that will someday become attractive to the larger providers, as Newport became to Ascensus.

And then there are unicorns like Fidelity, Vanguard, American Funds and the two payroll providers.

Neither Ascensus nor Newport relies on proprietary investments or has the capability to service participants, making them ideal partners for advisers that do. In fact, Ascensus is the main provider for Fisher Investments’ small-market 401(k) advisory. But can Ascensus stay competitive with well-funded providers that get asset-based revenue from proprietary funds and participants?

Along with record keepers, the retirement plan adviser market is consolidating quickly, though it is still in stage two, epitomized by many, though not necessarily big, deals.

But there are big differences between record keepers and aggregating RPAs.

Record keepers rely on scale, technology and relationships, in that order. RPAs rely on relationships, scale and technology, which makes for a much more difficult rollup, because they are basically consulting practices, with most sales made by the principal. Most are not real businesses, and there are tens of thousands of them, compared to hundreds of record keepers. Integrating these RPA firms will be much more difficult than with record keepers, and there will always be a vibrant pool of adviser competitors, which could eventually include RIA aggregators.

Because providers and advisers are so intertwined, their paths to success depend on each other. Yet as both look to service and monetize participants, that partnership could become frayed. That will get more interesting as they consolidate, which happens to all fragmented industries, like travel, tobacco and soft drinks or, more aptly, drug stores and big pharma.

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ RPA Convergence newsletter.

Data plays key role in serving plan participants

The post What Ascensus purchase of Newport Group means for advisers appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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