Steady Habits in the Land of TPAs
Topics in 401(k) Distribution: Second in a Series
One enduring habit of TPAs who administer 401(k) plans is just how steady their habits really are. In this our sixth study of TPAs going back to 2004 we find, for example, that:
• The median number of plans administered, 260, is virtually unchanged since 2012 (although the mean is up from 377 to 453 in that interval).
• Average plan size in terms of participants continues to hover around 80, ranging from 95 in 2007 to 65 in 2012.
• Average plan size in terms of assets has more or less tracked appreciation in equity values, hitting $3 million in 2018 for the first time.
• The proportion of TPA firms which are RIAs or producing TPAs has been more or less constant over the last 14 years, in the low teens.
• The median number of firm offices remains fixed at precisely 1.0; the median number of firm employees has ranged from 10 to 11 over the years.
In the unsurprising but more interesting category:
• The median number of new plan installations, having recovered from a nosedive in the wake of the 2008 recession, is unchanged since 2016 at 20.
• Start-up plans as a proportion of all new plans have also returned to and apparently stabilized at their pre-recession norm, in the 40 percent zone.
• TPAs continue to assert only a feeble impact on the choice of investment providers or recordkeepers, controlling those decisions in just a handful of new installations.
• TPAs continue to recordkeep fewer than one in five of their own new plans, unchanged since 2016 but down from 2012.
A metric that has changed steadily over the years is the average age of TPA firms—on a virtually linear plot over time. In 2012, for example, the mean age of firms was 25; this rose to 27 in 2016 and to 30 in 2018. Any guesses for 2020? We interpret this trend as signaling very little new firm formation.
Finally, even though TPA firm owners and officers increasingly express an interest in beefing up their 403(b) business, offering 3(16) administrator services and getting into MEPs, their greatest sense of opportunity remains acquiring or merging with other TPA firms and partnering with regional payroll companies. Oh, and the proportion looking to sell their firm over the next two to three years is up to 45 percent (from 36 percent) since 2016.
About the Research
Third Party Administrator studies were launched in 2004 by Brightwork Partners LLC; Brightwork was acquired by NMG Consulting in 2017. Findings are based on TPA studies 1-6; the research is conducted by telephone, typically among a representative cross-section of 250 or more TPA firms which administer 401(k) plans. TPA 6 (October, 2018) is available for immediate delivery.
About NMG Consulting
NMG Consulting (https://nmg-group.com/businesses/nmg-consulting/) is the leading multinational consultancy focusing solely on investments, insurance and reinsurance markets. NMG works with financial organizations to shape strategy, implement change and manage performance. NMG Consulting has approximately 100 employees spread across offices in Sydney, Perth, Singapore, Cape Town, Kuala Lumpur, London, Toronto, Kansas City and Stamford. The firm was established in 1992.
For more information
Merl W. Baker, 203.487.2000; [email protected]
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