System Upgrade

Industry updates call for providers to add services—how much platform rebuilding must they do?

In 2020, Vanguard became the largest recordkeeper to announce a strategic partnership with a tech provider. In this case, Vanguard transferred the day-to-day operations for its defined-contribution-plan recordkeeping business to Infosys, while retaining the relationship management, investment management and plan design elements of the business.

“The idea was that if we wanted to deliver Amazon-like experiences in the retirement space, we were going to have to find a partner that was an expert in digital transformation to help us modernize,” says Amber Brestowski, head of institutional advice and client experience at the Vanguard Group in Malvern, Pennsylvania. “That was the genesis for how we chose to partner with fintech.”

Nearly three years later, Brestowski says, the partnership, which included a shift to a cloud-based recordkeeping system, has already made progress: Operational issues are at an all-time low, while the firm has seen an increase in participant outcomes, including higher average account balances and payroll deferrals.

T. Rowe Price announced a similar digital transformation initiative in 2021 and plans to expand the relationship it formed with tech firm FIS. Industry experts say more recordkeepers of all sizes are looking for ways to upgrade all aspects of their technology systems, including strategic partnerships to deliver some or all services.

“The new technology puts pressure on the existing technology,” says Tim Slavin, senior vice president, retirement, at Broadridge in New York City. “We think that’s great. Our industry has not focused that much on technology historically, but now they’re drinking out of the firehose.”

Building for SECURE-ity

This push reflects the need for better tech to continue to scale while also meeting the mandates of recent regulations such as the Setting Every Community Up for Retirement Enhancement Act of 2019 and SECURE 2.0 Act of 2022. That has recordkeepers leaning on technology to create offerings for small-plan sponsors, incorporate newer Roth options than what had existed previously and create solutions that account for student loan payments.

Recordkeepers are also looking for ways to remain competitive as maturing fintech firms grab market share. Moreover, those traditional vendors face increased demands from plan sponsors, including more smaller employers launching plans, plus higher expectation from plan participants.

“They’re all trying to improve the end-user experience, across the board,” says George Sepsakos, a principal in Groom Law Group, Chartered, in Washington, and a columnist for PLANSPONSOR magazine. “We have all become accustomed to technology in our lives, and they’re trying to catch up and make the retirement side of someone’s life feel similar to what they’re seeing in other parts of their life.”

In general, recordkeepers are evaluating all potential tech upgrades in terms of their contributions to the particular provider’s scale and efficiency, says Nathan Voris, head of channel strategy at Morningstar in Richfield, Ohio.

“The recordkeeping industry is still facing fee compression, and a lot of disruption,” says Tim Hoying, a managing director at consulting firm Accenture in Wilmette, Illinois. “Even the largest, most efficient recordkeepers need to continue to push the frontier of what efficiency is, and the only way to do that is through technology.”

Leaning Into Automation

From an operational perspective, that means looking to automate as much as possible and for ways to do tasks more consistently across their client base. In terms of the product, a major area of focus for recordkeepers has been on generating the data that plan sponsors can use to make better decisions about their plans, says Amy Reynolds, a partner in consultant Mercer, in Richmond, Virginia.

“There have been many enhancements in plan sponsor reporting and making the most of the web tools for that,” she adds. “Sponsors are looking to create methodologies that really leverage the data that recordkeepers have, as opposed to just pushing back standard reports that have basic information.”

A goal is to help their plan sponsor clients understand demographic changes over time, figure out how to assist different segments within their participant base and become aware of areas where they can improve engagement.

But the accelerated pace of digital transformation presents a bevy of challenges for recordkeepers. Many still work from legacy, mainframe systems that have been bolting on new services or products. That patchwork approach can make it harder to pivot quickly, when necessary, and poses additional hurdles for partners.

Bridging the Tech Divide

“For recordkeepers with more legacy tech stacks, there might be challenges in adding more functionality on top of it,” Sepsakos says. “So you’re seeing them look toward whether it makes sense to try to continue to build on their existing tech or to completely move to a new program.”

Voris says the rise of application programming interface, or API, solutions has highlighted the gulf between recordkeeping firms with the most tech-forward systems and those that have lagged in digital transformation.

“Ten years ago, an integration might have been a multiyear, deep data integration, but, with the use of APIs, these things can now be done much more quickly,” he says. “There might be a third-party solution where a 7-year-old company has full API capability, but lining that up with a recordkeeper that might not be all the way there can be difficult.”

Such issues mean that some recordkeepers simply may not be able to advance their technology as quickly as they would like.

“People want their platform to be better and to do all the cool things now,” says Martha King, Infosys’ chief client officer and executive vice president and head of its Retirement Services Center of Excellence in Malvern, Pennsylvania. “But, often, it’s going to be a multiyear journey. That’s the sobering part of the conversation we have with some recordkeepers.”

The Challenge of AI

Looking ahead, experts say the consolidation that has existed within the industry for much of the past two decades will likely continue, as some firms see mergers and acquisitions as their most efficient means of achieving the scale necessary to remain competitive. The industry will also likely see further integration of newer technologies such as generative artificial intelligence.

“There are all kinds of challenges concerning how [that] is used—everything from the ethics to the accuracy,” Hoying says. “You can envision it having a huge impact on the business, but I don’t think anyone has figured out all those angles or dimensions yet.” —Beth Braverman