3 Disruptors Changing the Retirement Game
The retirement market has always had its share of disruption: regulatory change, competitive innovation, provider consolidation, media scrutiny, litigation, attitudinal shifts. And I don’t anticipate a slow-down, but rather see disruption speeding up. My team and I recently interviewed senior executives at 12 of the top 20 retirement firms for Oculus Partners’ research report, The New Normal. While the study focused on 2018 trends, the discussions shed light on dynamics with the potential to materially disrupt the industry for years to come.
These disruptors each have the potential to dramatically influence the relationship between participants and providers:
- Artificial Intelligence
- The Decumulation Tipping Point
- The New Open MEP
The new frontier of artificial intelligence (AI) and robotics has boundless potential. Many firms spoke of AI as a concept influencing their thought leadership. But only a few are putting it into action. Some have started applying it in operations, business analytics, sales optimization, and other behind-the-scenes functions. Others have begun to seek its benefits within the participant experience—creating human-like experiences within the scalable, judgment free zone of technology. As experimentation continues and techniques are optimized, I can see AI revolutionizing cost structures and dramatically improving participant outcomes.
Decumulation Tipping Point
Today’s retirees have not yet significantly drawn down assets from their DC plans despite the industry’s prediction of a withdrawal tsunami. While the pace and impact isn’t as predicted, these asset draw-downs will eventually take place. Rather than a tsunami, however, I foresee a slow but steady rising tide of retirees tapping into their retirement assets.
And while these waters will rise slowly, the long-term erosive effect will be the same, making the strategic importance of a well-designed post-retirement business model immediately apparent—something our study found providers are ill-equipped to handle today. In the face of poor economics, recordkeepers may not be able to deliver entirely new business and operating models, products and services and automated participant experiences required in a post-retirement world. As winners and losers emerge, parent companies may accelerate the shedding of their recordkeeping businesses, driving the next round of consolidation.
The New MEP
Faced with fiduciary regulations and new state plans for the private sector, employers may significantly shift their views about sponsoring their own company plans. The new open multiple employer plans (MEPs) concept is compelling. Employers with nothing in common can participate in an open MEP and offload most of their fiduciary liability. To date, a small number of existing similar programs have concentrated on the small and micro markets. Future open MEPs, however, don’t contemplate size limits.
If open MEPs come to be, savvy competitors can offer industry-specific MEPs where plans of all sizes could participate. Think of a provider who offers MEP for Silicon Valley technology firms, or healthcare providers, or heavy manufacturing companies. If these take off, such specialty MEP sponsors could, in essence, ‘own’ a group of individuals who stay within an industry for their entire career, even though they shift between employers.
These three dynamics are worth watching out for and actively building strategies around. If they present themselves in the future as predicted, they have the power to completely change the dynamic of the participant relationship and lifetime loyalty.