Recent TPA Mergers and Acquisition Activity: What Does it Mean?
There have been several recent acquisitions of TPAs by companies operating on the periphery of the retirement plan administration industry, which continues a trend we have been seeing for several years. Merger and acquisition activity is expected to increase as well-capitalized companies, frequently financed by private equity, seek additional growth via acquisition.
Smaller, less-capitalized TPAs are being forced to sell or risk going out of business while even the larger, stronger TPAs are selling to facilitate exit plans for their owners. Since many acquirers are private equity funded, they will soon be looking for yet another exit by selling their investment, potentially to a competitor or another conflicted party.
While this may be good news for TPA owners looking to cash out, it is an ominous development for financial advisors and plan sponsors. These acquisitions create conflicted buyers resulting in potential clashes with financial advisors, as well as increased risk to plan sponsors and participants.
That investment companies and record keepers are offering TPA services should not come as a surprise; they are always searching for additional avenues to distribute their financial products. It’s the same concept when Pepsi owned Pizza Hut, Taco Bell and KFC. They effectively put Pepsi beverages into the hands of millions of consumers, whether they wanted them or not. The narrowing of choices may be tolerable when ordering a soft drink, but it is potentially dangerous for retirement plans.
A record keeper who enters the TPA business may oppose a financial advisor’s carefully crafted investment offerings because they do not coincide with the investment products offered by that record keeper. Financial advisors might find that clients they have advised for years are suddenly switched to new platforms and steered away from their long-time advisors. This benefits neither the plan nor the advisor. A record-keeper, in promoting its self-interest, may oppose plan sponsors who want to make essential changes to their plans. Plan sponsors may be placed in an awkward – but not necessarily obvious – conflict in exercising their fiduciary responsibility. This is where the independent TPA provides immensely valuable knowledge and objectivity in this potentially uncomfortable process. It is ‘buyer beware’ when doing business with TPAs managed by conflicted owners. Be sure to do your due diligence, and be cognizant of the conflicts which may be driving the TPA’s advice.
QBI is one of the largest and most experienced TPA firms in the country. QBI is committed to stay independent and protect its advisor partners from conflicts. As an independent, tech-savvy TPA, QBI provides customized consulting services designed to provide high quality ERISA solutions for our clients and their participants, making QBI the top choice in plan design for plan sponsors and financial advisors seeking a TPA who can be a true partner.