Retirement Firms Need to Rethink and Retool: PwC Report

Call to Action

According to the report, investment managers, record-keepers, platform providers and institutional consultants that serve plan sponsors all recognize that endless cost reductions are likely to hinder long-term growth objectives. 

But given the industry-wide pressures, the important thing is to separate actions that are in their control from structural problems that are not, PwC says. 

Fee pressure, for example, will likely continue to challenge the revenue pool, but the ability to meet changing participant needs with new financial and wellness products or expand plan access with instruments can help deal with some of today's challenges. 

Other opportunities exist within participant coverage. PwC research finds a 17-point gap between access and participation rates for defined contribution plans — 3.5 times that of a defined benefit plan. The lack of financial wellness programs or advice tends to have a direct effect on whether employees forgo participation.

Despite the challenges, PwC sees four ways to help retirement firms remain relevant and reignite growth in their increasingly industry.

1. Adapt to changing participant needs. In the future, retirement firms will likely need to offer new products and services in new ways if they are to find and meet the differing needs of participants. New benefit offerings such as debt repayment programs or decumulation strategies and new access points such as pooled employee plans will be key in engaging with new participants earlier, expanding the addressable market by increasing access and growing the overall pie of retiree assets.
2. Diversify revenue sources. Retirement planning is evolving into an ecosystem of benefits that cross financial planning, health and wellness, and financial literacy. Firms that can extend beyond the current playing field — typically limited to the defined contribution plan — can be more effective at retaining assets over time. Multi-product, cradle-to-grave benefit offerings allow consumers to find and adopt different products as their needs evolve.
3. Reevaluate the operating model. Retirement firms are reevaluating where and how they participate given industry consolidation and product commoditization. For example, record-keeping has been upended by lower-cost technology and industry concentration. For sub-scale participants to remain competitive, they should determine where to participate and how to scale in a cost-effective manner.
4. Digitize the business. Advancements in technology provide more opportunities to automate tasks and lower maintenance costs to drive down expenses while freeing up reinvestment in order to deliver more beneficial participant experiences.