September 2012, Boston. Cerulli's latest research report focuses on the distribution of defined contribution (DC) plans in the small- and mid-sized plan sponsor segments (defined as plans with less than $250 million). Despite challenges, third-party administrators (TPAs) and retirement specialists remain optimistic about revenue increasing this year. "We surveyed both TPAs and retirement specialists and both expect an increase in revenue this year," explains Alessandra Hobler, analyst. "Specialist advisors are expecting the largest jump, with 70% expecting a significant increase. TPAs are a bit more reserved with 57% expecting increases in their revenue for 2012, and one-fifth of firms expecting a significant increase." "It should be noted that no firm expect revenues to decrease in any way, which is a great turnaround from the past few years of recession and offers a good indication of future growth given the current economy," notes Tom Modestino, associate director. Fee disclosure regulations are causing increased fee transparency among providers, which Cerulli anticipates to be a big factor in more business shifting into the TPA marketplace. Cerulli notes that some TPAs are expecting fee transparency to be a huge gain. However, other TPAs are concerned that the increased focus on fees will impact revenue across the board. "Distribution and service fees are increasing and fee disclosure regulations are making it difficult for firms to increase their price, which is causing profit margins among TPAs to shrink," adds Hobler. "Many TPAs are enhancing their distribution strategies and targeting retirement plan assets through strategy combinations of their own." Cerulli also explains that TPAs are able to maintain uncomplicated payment arrangements compared to other commission- or asset-based compensation models, putting TPAs in a great position to capitalize upon future growth. The opportunity for asset managers, Cerulli points out, is to provide dedicated focus on TPAs, and put forth effort to truly understand their needs. This requires a well-aligned strategy with these unique firms. In addition, to succeed in these plan segments, asset managers should consider multiple distribution strategies.
About Cerulli Associates Headquartered in Boston with offices in London and Singapore, Cerulli Associates provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.
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