A new report from McKinsey and Co. finds the retirement plan industry is approaching a tipping point due to demographic shifts, industry developments and increased competition — all of which are hitting retirement recordkeepers’ profitability and reshaping how they do business.
At the same time, the retirement and wealth management industries are converging quickly, with retirement solutions providers moving to diversify their revenues with ancillary products such as brokerage accounts and services such as financial advice.
For the retirement industry itself, recordkeepers’ revenues from administration fees have been declining as they have substantially reduced these fees to win new business. As a result, “cross-subsidized” business models have become more common, as some retirement solutions providers view the recordkeeping part of their business as a way to generate additional revenue streams — particularly from wealth and asset management.
The end result for financial advisors and their clients is a fast-evolving array of products and solutions aimed at helping more Americans prepare more effectively for life after work. That’s good news for the country, McKinsey says, especially considering the baby boomer generation is entering retirement en masse in what some experts have called a “silver tsunami.”
Still, the future of the retirement plan business is an uncertain one, especially for smaller and mid-tier providers that could find themselves swept up in a wave of ongoing consolidation. It’s also still an open question whether the 401(k) can be successfully transformed into an income vehicle, or if rollovers into individual retirement accounts will remain the norm.
See the slideshow for a review of eight big trends identified in the McKinsey report that are quickly reshaping the retirement industry.
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