Talking Scale with Voya, executives of Sterling Resources


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Peter Demmer is the co-founder of Sterling Resources and is responsible for leading the company’s strategic consulting practice.

As Demmer told PLANADVISER, Sterling Resources specializes in supporting pension services in the US and international markets, providing financial and business analysis, including mergers and acquisitions (M&A) support services. and market research. Naturally, given the enormous amount of consolidation that has occurred in the pension space over the past decade, Demmer has closely followed trends, conducted proprietary research, and consulted with some of the service providers directly. largest and most dynamic pension plans.

Providing some context for his work, Demmer notes that over the past decade, the universe of pension accountants has grown from about 400 to about 150, with no signs of slowing down. As the number of providers has declined dramatically, the role of the pension services industry has grown significantly, with more people and assets invested in the system than ever before. In total, total retirement savings in the United States are about $ 35 trillion.

Demmer says this story of increasing scale is often misinterpreted or not always presented in the proper context.

“What I’m saying is not all scales are created equal,” Demmer explains, citing internal data showing that only about half of recent M&A deals appear to have significantly increased pre-tax profits over the course of time. years after the sale closed. .

Sterling Resources data shows that attendee volume continues to be the primary driver of spend, especially for the two components (customer service and technology) that have the highest fixed cost values. However, the number of plans, the size of assets and other variables are also important drivers of expenditure. The costs that seem to be the least affected by the scale are sales and indirect assignments / overheads.

The main drag on profitable mergers and acquisitions appears to be the lack of experience in integrating various business portfolios, Demmer explains. Other negative factors such as complex service structures or multiple vendor platforms added to the slow conversion of the acquired book. On the other hand, the factors that have contributed to the post-M&A success have been the rapid integration into a single technology and process platform. Another important factor was the ability to deliver a substantial financial benefit as well as “real improvements in scope of service” to sellers’ customers, he notes.

The study also clearly showed that “fixed costs” do not stay fixed forever, whether before or after a merger and acquisition transaction. In other words, for the average supplier to Sterling’s customer base, the fixed costs of major customer service components were about $ 37 per participant four years ago. Today the figure is closer to $ 50 per participant. According to Demmer, this indicates an upward trend in defining an adequate scale or potential for fixed cost savings.

Reflecting on these points, Charlie Nelson, vice president and chief growth officer at Voya Financial, says there is no doubt that the pension M&A activity that has defined the past decade is growing. will continue for the foreseeable future.

“The competition for scale continues to accelerate,” he tells PLANADVISER. “We have seen consolidation even among and within the top 10 providers, and by some measures, up to 75% of all retirement savings assets are now registered by the top 10 providers. Even the biggest and the best companies face intense competition among themselves. “

Nelson points out that Voya (and many of its peer companies) now actively engages with Sterling Resources to conduct and share anonymous research on market performance, giving these companies a straightforward way to benchmark their own profitability and efficiency, without talk about the quality of their service. deliverables — with that of the broader market.

“Over the longer term, we plan to advance our technology infrastructure to facilitate our accelerated growth,” said Nelson. “It will be about leveraging investments in our data, digital and analytical capabilities, and our automation capabilities. All in the spirit of improving results and improved customer solutions for individuals.

As to whether Voya has more acquisitions up his sleeve, Nelson says the future is open.

“I can tell you that I don’t think we need an inorganic acquisition activity to achieve our growth plans for 2021, but as we navigate the years to come, we will most certainly be looking for opportunities that can help us grow even faster, ”he says. “It’s not a precondition that we do this in the short term, but we will absolutely look with this strategic vision.”

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