The third-party administrator marketplace now has a 30% influence on 401(k) assets, according to a study released by Boston-based Cerulli Associates last week.
Cerulli Associates analysts see this percentage increasing in the future and their influence expanding into the 403(b) not-for-profit market.
About 32 percent of those third-party administrators that manage small and midsize defined contribution retirement plans expanded their client base between 2009 and 2010, the survey said.
TPA's estimated a 30% chunk of assets represents nearly $850 billion in 401(k) assets, compared to the broader 401(k) market at $2.9 trillion as of year-end 2010, according to Cerulli's study. When 403(b) assets are included, TPAs influence $968 billion in total assets.
"Our survey reveals that the majority of TPA firms are servicing 401(k) plans," said Tom Modestino, analyst and director of Cerulli's retirement research. "TPAs are especially prolific in the small- and mid-sized plan markets (plans with 401(k) assets between $1 million and $50 million)."
Cerulli's report said 403(b) plans currently represent only about 10% of TPAs' product mix.
However, Cerulli analyst Alessandra Hobler says recent legislative changes, especially on Employment Retirement Income Security Act-based plans, present more opportunities for TPAs to scale their 401(k) expertise to meet the legislative needs of this market.
"Regulations really spurred a bunch of administrative and legal responsibilities for planned sponsors in the 403(b) end," Hobler said. "They really hadn't dealt with these intense regulations before, so as a result they really needed a helping hand to remain in compliance."
As a result, more firms are employing TPAs, Hobler says.
"That's why we've seen such strong growth in TPAs in the 403(b) market," Hobler said. "A lot of 403(b) TPAs have seen that immense growth and have tried to cross over and a catch a little bit of that growth for their businesses."
But Hobler noted that some TPAs have run into challenges because of the differences between 401(k) and 403(b).
"It's apples and oranges -- they're really two different plans," Hobler said. "As a result, a lot of those 401(k) TPAs started to hike up their fees, or exit the business altogether because they realized that it was just not meant for them."
Ceruilli's survey also reported the financial advisor landscape for those who serve DC plans is shifting. Asset control and influence is becoming more concentrated in the hands of true specialists, with RIAs leaving the market.
Recordkeepers, says Modestino, are recognizing the importance of TPAs to their overall growth strategy and are revamping their business model to handle an increase in TPA distribution and to strike a balance with shifts in adviser channels.
For asset managers, TPAs are increasingly becoming an important part of a DCIO strategy since their services now include investment selection, and they provide an avenue to open architecture for small- to mid-sized plans, Modestino said.
- Jim McConville