The Transitioning Market Dynamics for Retirement Services

With the advent of the pandemic, retirement recordkeeping is witnessing a major transition. As we know that retirement is one of the major opportunities for growth for asset managers. According to a survey, it has been found that the geriatric population residing in developed countries is going to share more during 2030 in comparison to the Chinese users aged between 15 to 59. A Plethora of financial institutions are gearing themselves up to tap into the various growth opportunities. In this blog, we will discuss the trajectories in this potential industry.

How big is the retirement market in the USA?

The United States has a colossal retirement market having assets amounting to USD 26 trillion in the form of private and public defined contributions. It has been found that this kind of account renders support to approximately USD 430 billion in revenue. Furthermore, the market is going to flourish more as studies found that by the year 2026, approximately three-quarters of the assets from the household will be owned by the population aged 55 years and above. It is quite evident that the Direct Contribution market is the primary keystone in the US retirement market:

  • The administration holds approximately USD 8 trillion in assets out of which the United States Direct Contribution market accounts for just 31% of the properly managed retirement assets.
  • There are about 110.1 million participants’ accounts through which users get access to their wealth
  • The total support through these assets is almost USD 30 billion of the revenue for the asset record keepers.
  • Approximately, 20.1% of the total revenue that is, USD 30 billion in the direct contribution market is developed through record keeping.
  • As of June 2022, the total value of assets in the retirement accounts has surpassed USD 33.8 trillion.

Owing to the numerous growth opportunities in the domain the various top-notch record-keeping companies have increased the share of their assets from 51.1% in the year 2006 to 71.9% in the year 2018. The process was led by Fidelity Investment having an asset share of USD 2.51 trillion and renders services to 33,710 plans holding almost 25 million participants. The other one is Vanguard having USD 1.5 trillion in assets, 2600 plans, and around 5.1 million participants.

Giving a financial security

assurance from cradle to grave:

In order to expand their recordkeeping businesses, various providers are giving focus on fabricating new revenue streams and establishing management services. In fact, the market players in this business are willing to offer services like cradle-to-grave and take care of the lifecycle from the earlier investment to retirement. For example, a prominent company name OneDigital acquired another company called Resources Investment Advisors and made 13 deals. Another company name Empower Retirement, in the year 2020, completed the acquisition of the prominent digital wealth manager name Personal Capital and came into a deal to fabricate a unified financial wellness. The obvious intent in the above deals was to establish a platform to deliver financial wellness amalgamated with financial planning.

Incorporation of Technology

To Overcome Challenges: -

The financial institutions are willing to provide various services such as:

  • A liberty to get customized services
  • An ability to meet the needs sponsored in the plan
  • Rising scalability of a record-keeping platform

However, the majority of service providers rely on databases and the main challenges with these services are as follows:

  • A lot of manual effort is required for the data entry owing to the lack of consistent data formats between various systems.
  • Cumbersome reporting mechanisms make it extremely difficult to examine the cost of the participants.
  • Facing difficulty in developing automated workflows
  • Performing integrations owing to integrations of multiple systems

These challenges are eradicated to some extent with the incorporation of technology. The following are some of the technological advancements introduced-

  • Developing a micro service and cloud computing-based architecture.
  • Customized workflows to simplify complex processes
  • Ability to precisely streamline numerous processes
  • Achieving scalability processes that are cost effective with the use of cloud
  • Mitigating the risk of the compliance

However, the providers are transforming the cost structure by using sponsors, advisors, and participants. There is an exponential rise in customer expectations and the market players are facing tremendous pressure. In order to garner benefits and long-term profitability various companies are trying to remain ahead of the competition. Some of the providers are breaking barriers and going through transformation:

  • Cost transformation: A plethora of record keepers are envisaging launching cost-cutting programs and channelizing that money into substantial activities.
  • Customer experience transformation: Changes in the traditional programs, steer the company on the progressive path. A combination of new ways of working leads to excellence.
  • Next-generation operating model: The next-generation models hold the capacity to fabricate advanced ways of analysis.
  • Human capital transformation: Few organizations expect up to 35 to 51 percent of the record keepers are expected to like more data-oriented companies. The workforce in the data analytics and IT are expected to be more fruitful.

How The Record keepers in The Retirement

Services can Acquire Requisite Services?

The companies which are embarking on this transformational journey require organization new skills to go through the challenges. Market players are making investments in various new capabilities from automation to digital marketing. In this reference, the gap between the requirements can be filled in two ways:

  • As discussed above, the incorporation of next-generation operating model capabilities such as digital analysis, agile and automated ways to keep the data is proving to be an effective way. Other ways are written as follows-
  • Partnership in the value chains
  • Improved talent acquisition method
  • The second way to sail in the domain is to make robust leadership on the institutions.

Other than this, the primary requirement to compete in the coming Direct Contribution marketplace is either a scale-based competitive advantage or a specialized focus. The conquerors in the domain will be those who represent success by activating participant base holistic advice services. Rendering these services include efficacious wellness platform and financial planning.

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Swara Keni

Head- Global Business Development

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