Early this century, we witnessed a rapid consolidation of coffee shops competing for our business, with now just 3 companies – Starbucks, Duncan Donuts, and JAB Holdings (Caribou, Peete’s, Krispy Kreme & other brands) accounting for 78% of the coffee shop business*. You may still see a lot of local independent coffee shops, but collectively their market share is small with a very high failure rate.
There is a direct parallel with the 401k plan industry. First, we saw the rapid consolidation of the recordkeeping business to now where Fidelity and Empower dominate, with majority of the remaining market shared by less than a dozen others. This is down from hundreds of record keepers a decade ago.
Likewise, the lion’s share of 401k advisory business is now being served by 15 national aggregators who offer a strong brand and replicable service model, integrated technology and support, with holistic solutions for plan sponsors and participants (i.e., additional revenue channels). The majority of the remaining market is shared by 50+ large regional firms and 500+ practices with $1+ million in revenue. These numbers will only decrease as the bigger fish continue to swallow smaller fish.
Small independent and family-owned advisory firms are becoming a relic of the past.
With fee compression, quickly emerging technologies, increasing competition for plan participants and other industry dynamics, it is becoming increasingly difficult for small firms to compete and grow.
Achieving scale by being part of a team (finding the right strategic partner) is now more critical than ever, not only to growing a retirement plan practice, but also to survival.
Think about that the next time you go for coffee.