Investing Along the Retirement Continuum

Through conversations during the past year with investors and corporations across the Financial Services Spectrum a consistent thesis has emerged, centered on the idea of investing along the “Retirement Continuum” For some investors, this can include allocating capital horizontally to each of its components to capture the entire “Continuum”. For others, it includes making concentrated vertical investments in one or two sectors

The thesis is supported by demographics, math and government policy; each of which has driven innovation in products and services.

Demographics: Beginning with the Baby Boomers as the first generation to begin to assume responsibility for their retirement, to technology-friendly Gen Z and Millennials saving earlier and more aggressively, an entire suite of retirement related products, services and technology has emerged to facilitate workers as they move through their careers. In addition, companies are responding to consumers’ increasing demands for a single provider for all their financial needs.

Math: The need for these services has become more pronounced due to demographic changes that create an increasing deficit in our ability to fund programs like Social Security. For example, the ratio of workers (who contribute payroll taxes) to non-workers has declined from 8:1 to 2:1. In addition, the non-working population is growing at a percentage rate of approximately 4X that of the working population.

Government Policy: At the policy level, the government is keenly focused on closing the “retirement gap”, where nearly half of the workforce does not have access to a retirement savings vehicle at work, particularly in small businesses. Policy is also increasing service providers’ fiduciary responsibility, as well as cracking down on cyber security risks.

There are two parallel paths The first is the typical worker’s Wealth Cycle, from when he or she enters the workforce, to when they retire and ultimately pass away. The second is The Retirement Continuum, which includes the products, technology, services and service providers that play a role at each life stage As you will see, many Retirement Continuum segments play a role across several stages of our lives, whereas some are more targeted Capital is flowing from both investors and within companies to capitalize on this Continuum.

In this paper, we provide the historical context that has developed today’s Retirement Continuum We begin with Baby Boomers, the advent of 401Ks, and the evolution of government policy. We also discuss the broader demographics impacting the retirement landscape And importantly, we address the different ways that investors and companies are expressing their “view” through deploying capital in the space We hope you find it helpful.

Managing Director

Historical Context:

Over the last several years, there has been a demographic and legislative shift within Financial Services that has highlighted significant opportunities for existing players and new entrants within the retirement space. Stemming from the necessity to cater to the new generations entering their Wealth Cycles, the retirement industry has continued to evolve. The Wealth Cycle refers to the accumulation of wealth and investing that occurs, typically, upon entering the workforce, when individuals begin accumulating wealth and managing their lives. The cycle carries through to retirement and after when the wealth is recycled back into the industry via allocations to specified parties.

Baby Boomers

To understand the current shifts happening in the market, it is important to start at where they began. The Baby Boomers, a generation born between 1946 and 1964, have been quintessential in the evolution of the retirement sector and are set to have significant effects on the market, even after they are gone 1 Known for the boom in population growth after WWII, this generation spans an approximate 20-year period that experienced a direct shift away from defined benefit plans to defined contribution plans

Baby Boomers were one of the last generations to receive defined benefit plans or pensions from their employers as their primary employer-sponsored retirement plan. The burden and risk of saving for retirement was placed on the employer and upon

The Wealth Cycle is the accumulation of wealth that occurs for an individual, typically upon entering the workforce, through to when it is recycled back to the next generation during the wealth transfer

As an individual travels through this cycle, they acquire various products and services to assist in the process of saving and accumulating wealth. The complex network of products and services offered to assist during these various phases is what we are terming the “Retirement Continuum.” Currently, demographic, legislative, and technological shifts are having significant impacts on investment opportunities occurring within the space. And because of these shifts, opportunities from the changing retirement market have garnered interest from new and existing investors. What are these shifts and how are investors expressing their view of these opportunities?

The Retirement Continuum is the complex network of products and services offered to assist during these various phases in the Wealth Cycle

retirement the employee would receive either a lump sum or an annuity style benefit plan to use during retirement. However, this created risk for the employer that involved managing and paying out the contracted amount to the employee, even if the retirement plan failed to produce the necessary funds. Furthermore, an employee would need to stay with the company for a specified amount of time to cash out on full benefits as promised in the plan, often nearing 20 years Any layoffs or career changes would likely endanger the employees’ abilities to save for retirement.

The passing of The Revenue Act of 1978 set the stage for the implementation of 401ks and 457b plans.2 Defined contribution plans hit the market at a time when the oldest of the Baby Boomers were 32 and the youngest were 14, creating a generation of split retirement focuses Defined contribution plans, like 401ks, are managed by the employee if they choose to contribute to the plan As such, the employee takes on the risk of saving, identifying investments and contributing to the plan

The Revenue Act of 1978 set the stage for the implementation of 401ks and 457b plans

Because Boomers were the first generation to experience having to plan and save for retirement on their own, many lacked the proper education and awareness of the need to save and invest early and often. This has created an issue where a myriad of Boomers plan on relying on Social Security, Medicare, and other government sponsored programs to fund their retirements. Prior to the introduction of defined contribution plans, in 1962, only 69% of retirees were receiving Social Security benefits.3 That number today has increased to almost 90% of retirees withdrawing from the Social Security pool, with an even higher percentage in lower-income households 4 This is significant

While an employer maintains fiduciary responsibility for the plan and can match or contribute, the risk is shifted to the employee. This risk aversion became popular among employers, and as a result defined contribution plans are widely used today For the Boomer generation, however, one half of the generation likely received access to a passive retirement plan, through a pension, and the other became the experimental group for selfmanaged retirement accounts.

In 1962, only 69% of retirees were receiving Social Security benefits; that number today has increased to 90% of retirees

due to the vastness of the Boomer generation, which is estimated to be about 73 million people, all of which will be least age 65 by 2030 5

The generation’s immense size has been a main contributor to the aging population of America where the older, retired generation is set to outnumber the current labor force According to the U.S. Census Bureau, by 2050 the population aged 65 and older will be 83.7 million, almost double its estimate of 43.1 million in 2012.6 And since 2010, there has been a slow decline of around 657,000 people in the younger populations.7 Essentially, the non-working population is increasing by 12.9% while the working age population, and more importantly, those with the ability to fund government retirement assets like Social Security, is only growing by 3.1%.8 However, this is not the only driver of the aging population Lower fertility rates and longer life expectancies have also pushed the population into an older average Therefore, retirement funds will need to last longer, and

The Success of the U.S. Retirement System

Fourth Top ($93,500)* ($294,000)* ($543,000)* ($904,000)* ($2,000,000)*

average level of augmented wealth in 2006 for augmented wealth quintile, which includes estimates of Social Security and DB benefits as assets.

Non-working populations are growing at a percentage rate approximately 4x that of the working population in the Unites States

government aided programs will be depleted at a faster rate than they are replenished This stark reality is ever present and well known in younger generations, who no longer expect to depend on government aided programs for retirement.

Baby Boomers have also been able to accumulate significant wealth which is set to transfer to the next generation. Compared to the 3% of wealth held by Millennials in the US economy, Boomers possess almost 57% of all the wealth and assets in the US economy 12 Now being termed the “Great Wealth Transfer,” an estimated $30 -$68 trillion is set to pass down to the next generation over the next 10 to 20 years.13 However, this will likely not be dispersed evenly as almost half of the wealth will come from the top 1.5% of households.14 Thus, those who service high-net-worth individuals will see significant activity as they prepare clients for this transition. Moreover, as the retirement industry shifts its focus to the next generation, the wealth transfer will be significant for those who can capture market share.

Looking Ahead

generation Millennials known for Historical and Projected Population by Generation4 90M 80M 70M 60M 50M 40M 30M 20M 10M 0M 2010 2020 2030 2040 2050 Millennials Gen X Boomers Silent 3 2022Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Table IV.B3 4 Pew

Because Boomers are set to retire at a rapid pace, with around 10,000 reaching age 65 daily, the current retirement environment has been evolving to cater to their needs.9 Boomers began to reach retirement age in 2011, but many planned to continue their careers. In a previous survey, it was noted that only 11 percent of Baby Boomers were planning to stop working upon reaching retirement age 10 That said, the pandemic has slightly shifted this mentality, with a spike of 3.2 million retirees in 2020 compared to the prior annual average of 2 million.11 While their later entrance into retirement slightly delayed their withdrawal period, the postpandemic surge means a rapid increase of withdrawals from retirement accounts and Social Security.

born and their connection to the internet and growth of Ratio of Covered Workers to Social Security Beneficiaries3 10 Historical Estimated 8 6 4 2 0 1955 1980 2005 2014 2019 2030 2055 2080 Harbor View Advisors 6

Investing Along The Retirement Continuum

technology.15 In 2018, 35% of the labor force included Millennials, with the oldest being 37 and the youngest 23.16 That percentage has steadily increased as more Millennials have entered, and more Boomers have retired. Moreover, Gen Z is soon to make up a significant portion of the workforce, already accounting for 5% back in 2018 17 Both generations will have a large impact on the retirement industry as they continue their accumulation phases and begin to explore product and service offerings along the Retirement Continuum

bitcoin, alternative investments, and more techenabled platforms to manage their accounts.

Default Automatic Enrollment

Because of the emphasis on the population, younger generations are aging wary Social Security will be an insignificant, or

U.S. that nonexistent, addition to their retirement plans. In fact, 71% of workers in the 2022 TransAmerica Center for Retirement Studies said that they were concerned that Social Security would be unavailable upon retirement 18 To compensate for this Social Security deficit, Millennials have begun to invest earlier than any of their preceding generations According to a recent Schwab study, Millennials began saving in their mid-20s, almost a decade ahead of when Baby Boomers began to save, with about 70% utilizing employer-sponsored plans 19 Gen Z, although just entering the workforce, is saving a median 20% of their income, well above the recommended 1215%.20

Thus, there are two major demographic shifts impacting both sides of the Wealth Cycle that are influencing the evolution of the Retirement Continuum On one side of the spectrum, there is a large generation preparing for retirement and the transfer of wealth to younger generations On the other side, Millennials and Gen Z will be pouring money into their retirement and other accounts at a

Millennials are saving earlier and more aggressively than previous generations

Investing in their retirement more aggressively from the time they enter into the labor force, these generations are very different from Boomers, who were the experimental group for defined contribution plans. These tech-savvy youngsters will be looking for ways to invest that are digitalized and individualized, including interest in digital assets like

[5] T. Rowe Price Retirement Plan Services

Two major demographic shifts: Boomers entering retirement and Millennials entering the workforce much more aggressive rate than previous generations, while also looking for new product offerings that align with their retirement goals Overall, money will be flowing through the Wealth Cycle as it shifts hands and enters the system Due to these demographic drivers and resulting flow of wealth, investors looking to capitalize on the changing environment have been positioning themselves along the Retirement Continuum. Before discussing investors, it is important to examine the changing legislative environment that will set the stage for their investment choices.

Entering the Workforce

401K Benefit Providers

401Ks, IRAs, Roth IRAs

Asset Management

Custody

Life Insurance

Retirement Service Providers

Recordkeepers

Technology

TPAs

Gearing Up for Retirement

401ks, IRAs, Roth IRAs

Annuities

Asset Management

Custody

Estate Planning/Trusts

Financial Planning/Tax Advisory

Life Insurance

Recordkeepers/TPAs

Retirement Service Providers

RIAs/Wealth Management

TAMPS

Technology

Wealth Transfer

Estate Planners

FinancialPlanning/Tax Advisory

Inherited 401k/IRA

Life Insurance/Annuities

RIAs/Wealth Management

Technology

Trusts

Wills/Lawyers

Retirement

401ks, IRAs, Roth IRAs

Annuities

Asset Management

Custody

End of Life Prep

Financial Planning/Tax Advisory

Life Insurance

Medicare/Insurance

Recordkeepers/TPAs

RIAs/Wealth Management

Social Security

Technology

Wills/Lawyers

Products and services utilized to gain positive returns ahead of retirement and provide income in retirement

Retirement Plan Service Providers

Provides investment advice, administrative and account services to retirement plans and participants

Wealth Management / Insurance Services

Financial planning, investment advisory and insurance products that accumulate wealth or provide financial protection

Asset

Managing investments across asset classes to grow in value over time

Distribution Channels

Paths that the products and services can take to reach their target audience

Asset Owners

Organizations that represent the holders of long-term retirement savings, insurance and other assets

Trust

Legal

Legislation:

Despite the robust growth of the retirement industry in the United States, experiencing a peak of $39.4 trillion in total retirement assets at the end of 2021, there are several key concerns that have affected recent legislation 21 This includes the evergrowing retirement gap, fiduciary responsibilities, and cybersecurity threats Firstly, there are about 45% of American private and public workers who have no access to an employer-sponsored plan or have opted to not participate.22 This is concerning Security funds are individuals through as the trajectory of Social insufficient to support these retirement.

increase of 22.3%, from 18 million to 21.3 million, of poor or near-poor people over 62.24 This looming crisis is at the head of many policy debates, harboring bipartisan support on various bills proposed to address this issue.

Legislation is focused on closing the retirement gap, expanding fiduciary responsibilities and mitigating cybersecurity threats

Currently, it is predicted that by 2034, funds will be depleted, and the remaining capital will only be able to cover about 75% of scheduled benefits 23 Furthermore, the increased cost of health coverage and long-term care, not covered by Medicare, will put many elders at risk of poverty. It is estimated that between 2019 and 2045 there will be an

In the push to create a more accessible private retirement market, and to relieve some of the pressure off the federal system, legislators have been focused on extending fiduciary responsibilities and advancing industry technologies Specifically, they are focusing efforts on making a more clientcentered and equitable system that expands participant access and lowers pricing barriers in hopes of enticing smaller and mid-size businesses to adopt plans. Legislative focuses have utilized government funding and tax-incentives to expand access to retirement funds, specifically for those who are not participating in retirement savings vehicles. Furthermore, as the industry becomes more technologically advanced, there are increasing concerns surrounding the passing of sensitive information and cyber security threats. Overall, legislators have prioritized the retirement industry and will continue to do so as the government’s ability to provide Social Security diminishes

Around 45% of workers are not covered by an employer-sponsored retirement plan

The Retirement Gap:

Addressing the Retirement Gap has become a key concern for law makers As the burden of welfare will eventually fall on the government, it is critical that they address the increased elder poverty risk Gen X has especially fallen behind and suffered setbacks from withdrawals made during the 2008 financial crisis. To combat this, state and federal legislators have adopted a two-fold approach. On the state level, governments have adopted state

mandated retirement programs.25 These require businesses with 5 or more employees to either offer retirement plans through their state’s program or a similar alternative. This approach mainly targets smaller businesses to encourage early saving in a group that has historically not had access to employee-sponsored plans. Currently, 11 states have or will have mandatory retirement programs

Based on recent data, more than 497,000 funded accounts with around $457 million in retirement savings can be traced to these state mandated programs 26 Upon the full implementation of all 11 programs, it is estimated that the plans will provide retirement benefits for 31% of the currently uncovered workforce.27 This creates significant opportunity for those servicing the entire spectrum of the retirement industry, especially in states with mandated programs. As the trend of States requiring programs is likely to continue, the opportunity to target and grab market share from smaller businesses also arises

This opportunity is augmented by the recent federal laws that have passed, such as the SECURE Act and the SECURE 2.0 Act.28 While a universal retirement program has been on the federal docket several times, including a proposal appearing on the 2023 docket, they have yet to be passed into law Instead, federal laws surrounding the retirement industry

the SECURE 2.0 Act were implemented to improve and mandate existing retirement plans, both employer-sponsored and otherwise. Both bills address the need to extend required minimum distributions (RMDs) and expand on defined contribution plans like 401(k)s, 403(b)s, and IRAs For instance, the passing of the SECURE Act in 2019 opened eligibility of 401(k) plans to long-term parttime employees, which is a change driven by the prevalence of “gig-work” popularized during the pandemic. Furthermore, it removed the age limit for IRA contributions and provided a tax credit to small employers with up to 100 employees that implement an employer-sponsored retirement plan. Essentially, the legislation expanded the longevity of retirement plans, while also incentivizing small businesses to adopt them.

The recent passing of the SECURE Act and the SECURE 2.0 Act has created significant opportunity by expanding on current requirements have focused on adjusting existing plans and expanding retirement investment vehicles. These policies are attempting to boost private market participation as evidence shows that increased saving is necessary to compensate for longer life expectancies and greater strain on welfare programs. For example, both the SECURE Act and

Another crucial part of the SECURE Act was the establishment of Pooled Employer Plans or PEPs. A PEP is a 401(k) plan that allows unrelated businesses to participate in a single plan managed by a Pooled Plan Provider or PPP. The PPP thus becomes the fiduciary and monitors plan administration and investments, and is typically a bank, insurance company, RIA, or third-party administrator. And because fiduciary responsibility is outsourced to the designated PPP, they are also responsible for selecting and overseeing third-party vendors like trustees, recordkeepers and external advisors. This relieves the administrative burden of managing a retirement plan from employers that may not have the bandwidth to support it. The option opens the opportunity for smaller businesses to be able to offer benefits without having the burden of full fiduciary responsibilities.

Similarly, the 2022 SECURE 2.0 Act requires autoenrollment and a starting contribution rate of 3% for businesses adopting new 401(k) and 403(b) plans beginning in 2025.29 These new requirements are designed to encourage employees to utilize retirement programs offered by employers. Moreover, it allows retirement plan service

providers to offer automatic portability services to plan sponsors, enabling the transfer of employee funds from one retirement account to another if they transfer jobs, rather than forcing individuals to cash out and disrupt their retirement savings. With the growth of job hopping, especially among younger generations as job tenure averages below 3 years for Millennials and Gen Z, this is important in encouraging continued savings into retirement accounts 30

While federal laws target the plans themselves, states have focused on implementing mandatory policies. As such, the newly instated mandated state policies will also have to comply with the federal mandates. This two-fold approach opens an opportunity for investors to target a newly created market share and expand product offerings supporting service providers.

Client-Centric Approach:

Another theme that has emerged regulations is a push for a more through new client-centric retirement industry. To make the market more accessible for everyday clients, especially those without a history of retirement savings, regulations have pushed to make saving more beneficial for the participant. For example, there has been a crackdown on hidden fees and an expansion of fiduciary responsibilities, even extending to broker dealers. New regulations have also called for more fee transparency, greater documentation providers interest of relationships between service obligations to act in the best participants.

Regarding broker dealers, the SEC adopted a new set of standards called Regulation Best Interest (Reg IB) in June of 2019.31 Building upon the Investment Advisers Act of 1940, the new rules require the vetting of third parties on a more qualitative basis. This is applicable to broker dealers or people associated with them when giving recommendations of any securities transaction or investment strategies relating to a retail customer. These regulations have affected many retirement service providers, especially those conducting business under the direct regulatory guidance of the SEC. In general, these legislative changes focus on mandating that recommendations are in the best interest of the clients. The guidelines set stricter rules regarding relationship disclosures, investment or security recommendations, conflicts of interest, and compliance standards. The laws also note the importance of keeping in accordance with any changes to recordkeeping guidelines. Overall, the rules are geared towards improving the client experience and ensuring that brokers obtain a more fiduciary stance when setting recommendations

These regulations are likely not only to cut costs, but also to create a more transparent system to encourage new entrants into the market. However, for service providers, it can mean incurring extra costs to stay compliant while also having to lower the costs of their services This causes added pressure to profitability, meaning that firms will need to plan and invest accordingly to keep up with of the changing regulatory environment. Pricing and pressures have reverberated through the retirement the industry, affecting multiple segments of the Retirement Continuum, and will continue to impact new entrants looking to compete in today’s market.

Regulation Best Interest sets stricter rules regarding relationship disclosures, investment recommendations, conflicts of interest, and compliance standards

Online Security:

As technology becomes more integrated, either to comply with regulation or improve capabilities, there is a growing concern surrounding cyber

security. In today’s retirement system, plan sponsors share sensitive participant information, like name and Social Security numbers, with various service providers. This complex network of service providers, such as recordkeepers, third-party administrators, and custodians, pass this information between each other via the internet.

This poses significant risk if a cyber-attack occurred that targeted retirement plans. In 2018, the federal government did require financial institutions to secure this information; however, other parties administering plan services were not held to the same standards of mitigating these risks.32 As such, the U S Government Accountability Office (GAO) released a report recommending the Department of

Labor (DOL) set guidelines for who is responsible for managing risk and establishing new requirements.33 In the months following the report, the DOL released a best practices statement outlining new standards that extended from plan administrators to recordkeepers

New regulations are quickly changing and evolving to address increased cyber security risks and the changing technological environment of the retirement industry. Furthermore, as products develop to cater to younger generations, like new investment options such as digital currency, and the integration of AI and blockchain, regulation will follow as the need to mitigate risks becomes more complex.

The Challenge With Cyber Security

Investments made across the industry and then integrated under one roof.

Horizontal Strategy involves investment in a wide variety of segments; for example, health and life insurance, employee benefits and wealth management all being housed within one company. Through acquisition or internal buildouts, companies have looked to expand their reach by targeting multiple segments that are in adjacent markets across the Continuum. This way, the company can offer products and services for clients at various stages in their Wealth Cycles Essentially, they are aiming to expand their market focus by broadening the scope of services and adopting a holistic view of retirement. By doing so, many have looked to target the incoming rush of retirees, stemming from the Boomer generation, while also adjusting to cater to new entrants by focusing on employee benefits or 401(k) plan offerings.

On the other hand, the Vertical Strategy involves investment down the Retirement Continuum. This

Investments made down a specific segment of the continuum

can involve consolidating a specific segment of the Continuum, like wealth management. By doing so, the company can expand its regional presence, achieve scale, and build out niche offerings for its specific practice area. Because certain segments of the Retirement Continuum are utilized at multiple stages along the Wealth Cycle, those who adopt this strategy also can target both Boomer and Millennial market share. In the case of wealth management, many advisors are preparing their clients for the “Great Wealth Transfer” by encouraging family sessions with the beneficiaries present in hopes they continue the advisory relationship once the wealth has been passed

Although the two strategies look to approach the immense opportunities opening along the Continuum in different ways, there are key themes that are relevant to both

The Retirement Continuum

Key Themes:

The need to scale, digitalize, and expand capabilities is prevalent throughout the spectrum of products and services along the Retirement Continuum. As companies prepare for the influx of capital from those about to retire, in retirement, and beginning to save, industry upgrades and innovation has occurred Pushed by the need to cater to two very different generations, the industry is evolving.

customers, lower costs, and boost profitability.

The need to scale, digitalize, and expand capabilities is prevalent throughout the Continuum

Need to Digitalize:

Historically, the financial services industry has lagged in terms of technological advancement. However, with recent regulations pushing for faster and more frequent reporting, clientele wanting more reliable and easy-to-use online portals, and the need for cost-effective methods to cater to these demands, digitalization has been at the forefront of many industry players’ strategies

The recordkeeping industry has already undergone a round of consolidation, with more than 60% of recordkeeping assets held by the top five recordkeepers, and thus has shifted its focus towards digitalization.36 This segment is positioned for growth as new plans required by state governments will need recordkeepers to monitor those accounts. In fact, because of new benchmarking standards that require more frequent reporting combined with job fluidity among younger generations, the need to upgrade databases have been a major driver of innovation in this segment. Updating and developing technological capabilities will allow for faster, more accurate reporting that can free employees for other tasks, like garnering additional market share.

Up to 80% of insurance customers would switch carriers due to lack of user-friendly digital interfaces

In the insurance sector, digitalization has replaced 30% of insurance jobs and almost 100% of the industry’s manual labor.34 While back-office support and administrative roles have been digitalized, hires in data science, tech, and customer service have increased Moreover, in a recent survey, up to 80% of insurance customers would switch carriers due to lack of user-friendly digital interfaces and up to 77% would prefer application.35 industry has

to submit claims via a mobile While, historically, the insurance struggled in a low-interest rate environment that has pressured profits; the ability to digitalize aspects of the business can attract

Furthermore, technology continues to evolve and be adapted for the retirement space in a way that caters to a younger demographic and firms are taking notice. A recent trend is the integration of robo-advisors or AI into the market. To both attract younger clients, who are more likely to seek out a robo-advisor, and compensate for talent shortages, technology like AI and robo-advisors are a great option.37 Deals like the $1 billion acquisition of robo-advisor Personal Capital by Empower Retirement in 202238 will continue moving the market forward in the direction of automated retirement and investment advice. AI supported technology can also provide access to data-driven information that is more frequently updated and easily accessible Moreover, streamlined online processes can create efficiencies within firms to cut costs This has become an increasingly important issue as fee pressures have threatened profit margins of various markets within the retirement industry, including recordkeeping and asset management.

Need to Scale:

Fee pressures due to consolidation and new regulations have had a major impact across industry

segments. Major players can benefit from cost synergies and scale, allowing them to offer competitive pricing. Smaller firms thus have a harder time competing without the added scale Pricing pressure is compounded with new regulations that target “hidden fees” and the push ensure fair pricing. As the need to cut costs increases, merging with an already scaled business can offer opportunities for continued growth

to focus on client work while obtaining the resources necessary to grow their businesses. This cumulation of events has allowed major firms to quickly consolidate over the last several years

Expand Capabilities:

Wealth management, for example, is currently undergoing a wave of consolidation. RIAs have proven to be valuable and there has been an influx of more sophisticated buyers looking to invest

Whether a firm seeks to strengthen their current niche or move into neighboring markets, expanding their capabilities and product offerings can attract a younger clientele while better servicing existing customers For example, those investing in traditional asset managers are currently focused on expanding distribution channels or strengthening organic growth capabilities. Larger banks are expressing new interest in asset management after an almost two-decade hiatus to focus on core business segments.40 Asset managers entered 2022 with strong revenue growth and increased global market share. Of global financial assets, the asset management industry was able to capture 28 percent, a 5 percent increase from the beginning of the decade 41 Because of new capital requirements pressuring margins, banks became reinterested in the space beginning in 2021, as asset management’s attractive potential returns on equity made them enticing additions for banks to boost margin performance

As the need to cut costs increases, merging with an already scaled business can offer opportunities for continued growth

These include larger and well-managed groups that have available capital and integration capabilities to pursue an organized and aggressive acquisition strategy In addition to private equity, new entrants like insurance firms have become interested in the space. Specifically, insurance firms have recognized the synergistic ability to have in-house investment expertise for their portfolios. As RIAs pursue succession plans or avenues to scale, many seek out partnerships. Because the average age of an advisor is 57, there will be many founders entering the market to execute succession plans.39 Moreover, partnerships with larger players also enable advisors

Another example is, with the passing of the Secure 2.0 Act and required autoenrollment, that plan sponsors will be looking for firms who offer autoenrollment capabilities Those who do not will need to quickly expand their offerings to not only stay competitive, but also maintain compliance. Additionally, with policy makers focused on closing the retirement gap, opportunities to capture market share, especially amongst small business, will become more prevalent Those who can service smaller plans and can offer products like PEPs will be able to target new clientele created by mandatory retirement programs.

Overall, the Retirement Continuum will evolve as client demand and legislative requirements change Those with the ability to adapt quickly and identify changes early will have the ultimate advantage.

Case Studies:

Investors are noticing the growing capital flows within the Wealth Cycle and positioning themselves along the Retirement Continuum. We have assessed four case studies to further analyze how investment theses are currently being expressed.

Case 1:

Case 1 is a large wealth management firm that has its origins in a rebranding that occurred in 2019. Alongside the rebranding, it also acquired a large wealth management firm. This jump started its acquisition strategy, and it was able to almost double its assets under management and gain a national presence in under 4 years

Case 1’s main strategy along the Retirement Continuum has been a vertical one. Its main acquisition targets have been wealth management firms that are then consolidated under the same name and integrated into the parent company. Furthermore, their private equity backing has

given them the financial support necessary to pursue an expedited acquisition strategy. In 2022 alone, they were able to make 9 acquisitions, assisting in their ability to scale as quickly as they did.

This strategy seems to be driven by two broader trends. Motivated by their own retirements or looking for other avenues to scale, RIAs will typically seek out partnerships. As such, RIAs have begun to enter the market seeking partnerships for growth On the other hand, new entrants and private equity have joined the buyers’ market as wealth management has proven to be particularly profitable, especially in low interest rate environments Furthermore, as Boomers continue to retire, with around 10,000 people reaching retirement age daily, one-third of them are expected to utilize a financial advisor to help them manage their funds.42 As such, this firm is looking to expand their market share and establish a national presence.

Case 1: Number of Acquisitions by Type

Case 2:

Case 2, a subsidiary of a larger company, was originally an insurance provider. Through the merger of three retirement service providers, the newly formed company aimed to deliver a holistic approach to retirement planning services. In this way, the company was created to be a one-stop shop for plan sponsors and participants. In 2020, the company enacted an acquisition and investment strategy that focused on rounding out key parts of their business This strategy included expanding core business services in the retirement planning field as well as an expansion into wealth management and recordkeeping.

Their acquisitions tend to be on the larger end, including a multibillion-dollar acquisition of a fullservice retirement business in 2022. The purchase included a retirement recordkeeping and administrative suite of services. This, alongside their other acquisitions, expanded their retirement plan capabilities allowing them to service a multitude of clients and a variety of plans. Their acquisitions also included large deals in both the wealth management and retirement services space Furthermore, outside of their acquisition strategy to expand their core capabilities, they

have also acquired and formed partnerships to enter neighboring markets like wealth management.

In 2022, they entered a partnership with a wealth management firm to expand their retirement offering The partnership pairs retirement plan service expertise and wealth management expertise on one tech-enabled platform This new service, specifically, caters to employer-sponsored plans All-in-all, this partnership shows an expansion into the wealth management space.

The company’s investment strategy has been twofold They have focused vertically to expand on core capabilities, expanding on their retirement services and extending their market reach. Moreover, they have acquired horizontally into the wealth management space with the addition of key acquisitions and partnerships. This two-fold approach has allowed them to continue to build out their core capabilities while also extending into neighboring markets. In a way, they can continuously service plan providers and participants while also extending into financial planning allowing them to cover new entrants, retirees, and those looking to transfer wealth.

Case 2: Number of Acquisitions by Type

Case 3:

Case 3 was founded in the early 2000s and is currently private equity-backed. They originally started as an employee benefits company but have gradually expanded their service offerings over the years. Today, they provide employee benefit, insurance, financial, and HR consulting services around the United States. This horizontal expansion has been driven by their pursuit to provide a “holistic” solution for their clients. As such they have pursued an acquisition strategy that covers both health and financial services, spanning clients both in the accumulation phase and in the retirement phase. Their history of private equity backing has allowed them to pursue an aggressive acquisition strategy that has quickly allowed them to scale into these neighboring markets For Instance, in 2020, they expanded into the retirement and financial services space and by 2022 they have made over 35 acquisitions to build out those divisions.

Their strategy of providing a holistic solution evolved over time. In the beginning they focused primarily on their health and benefits services, building out their employee benefits, HR

consulting and insurance divisions. More recently they have embodied a horizontal approach along the Retirement Continuum. More specifically, in reference to their acquisition of an insurance advisor to Medicare recipients, they stated that this acquisition paired well with their recent acquisitions into the wealth management space, allowing them to build on both financial and health offerings servicing retirees Further explaining how this health acquisition has allowed them to enter the fastest growing segment of the health insurance space.

Moreover, they recently announced their Wealth Management division in 2022, noting the acquisitions of several wealth management firms. Their main goal was to expand their financial services division to better serve a wider range of clients both in terms of age and income levels. As such, they highlighted their goal to capture younger clients as well as retirees. Their strategy has encompassed the extent of the Retirement Continuum, covering both financial and wellness services to establish a holistic approach for both plan sponsors and participants.

Case 4:

Case 4 was formed through the partnership between a private equity group and two industry professionals. Together, the newly formed company aimed at developing an insurance brokerage firm by consolidating the fragmented industry Fueled by favorable market conditions and available capital, the platform company was able to implement an aggressive acquisition strategy that allowed them to grow revenue to upwards of $500 million in just 4 years Their strategy targeted small to mid-size employee benefits and property and casualty brokers with annualized revenue of less than $10 million. As such, they were able to complete 112 acquisitions to roll into the platform company.

In 2016, the company was then sold to another private equity firm who went on to complete an additional 124 acquisitions Building on the success of their predecessor, the private equity group focused on expanding regional presence and expanding capabilities. Moreover, they also implemented several internal improvements that included upgrading IT systems, implementing salesforce and revamping infrastructure Through the hiring of several key positions, they looked to

further strengthen technology and organic growth measures. Their acquisition strategy and internal improvements further consolidated the industry and allowed the company to expand into specialty insurance targeting industries like commercial transportation and senior living facilities.

In 2019, the company was re-purchased by the founding private equity group and has continued to be acquisitive. It is during this time that they have begun to focus on developing their retirement services, expanding into wealth management and retirement planning through their acquisition strategy. The vertical focus on insurance, by both private equity groups, has allowed the company to grow into a major player in a once largely fragmented industry. As such, the company has expanded on core capabilities while also covering niche industry verticals on a platform that benefits from the scale of a large firm. Furthermore, the recent expansion into retirement plan services and wealth management follows the trend of those looking to capitalize on the growth potential found along the Retirement Continuum Today, the firm distributes property and casualty, risk management, employee benefits and personal insurance spanning 200 offices.

The retirement landscape is constantly evolving; however, recent developments are centered on two themes. Firstly, the continuous transfer of increasing responsibility to the individual to save for retirement and the government’s decreasing ability to fund retirement programs. Secondly, the increase of policy reforms designed to level the playing field of retirement savings so that everyone can securely prepare for retirement

In terms of investment, the Retirement Continuum continues to be ripe with vertical consolidation within specific areas, like wealth management However, there has also been a growing presence of horizontal investments across the spectrum by both strategic operators and financial investors looking to broaden their focus to encapsulate several sectors within the retirement space. In short, both strategies aim to target individuals as they journey through their Wealth Cycle to capture

market share as capital flows from Baby Boomers and Millennials continue to shift. This paper has hopefully provided helpful context to explain this trend, as well as illustrate both the vertical and horizontal paths that companies and investors are pursuing to capitalize on “The Continuum”.

Demographics, math and resulting policy changes will no doubt be catalysts for ongoing change which will hinder some firms and create opportunities for others The need to scale, digitalize, and expand capabilities is being felt across industry segments as the need to grow and attract the attention from those entering their wealth accumulation phase and those looking for products and services to assist them through retirement and beyond. Either way, the opportunity for investors is to “skate to where the puck is headed” to be best positioned to benefit from the evolving Retirement Continuum.

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Tatiana Lathion RESEARCH

Asset Management: Managing investments across asset classes to grow in value over time

Asset Owners: Organizations that represent the holder of long-term retirement savings, insurance or other assets e.g. pension funds, endowments

Augmented Wealth: Sum of real assets, financial assets and pension wealth of retired individuals

Baby Boomers: Generation born between 1946-1964

Distribution Channels: the network of businesses or intermediaries through which a service or product passes to reach the end consumer

Gen X: Generation born between 1965-1980

Gen Z: Generation born between 1997-2013

Gig Work: Temporary or freelance work performed by an independent contractor on an informal or on-demand basis e.g. Doordash, Uber

Insurance Services: Services involving a contract in the form of a financial protection policy

Legal Services: services normally provided by or at the direction of an attorney

Millennials: Generation born between 1981-1996

Retirement Continuum: The complex network of products and services that have developed to service the retirement industry.

Retirement Plan Service Providers: Provides investment advice, administrative and account services to retirement plans and participants

RetirementSavings / Income Vehicles: Products and services utilized to gain positive returns ahead of retirement and provide income in retirement

Technology: Methods, systems and devices developed to aid retirement services and products

Trust and Administration: Legal processes used to facilitate the transfer of wealth

Wealth Cycle: The accumulation of wealth and investing that occurs, typically, upon entering the workforce, when individuals begin investing into retirement accounts and carries through to retirement and after when the wealth is recycled back into the industry via allocations to specified parties

Wealth Management: Form of financial services that involves financial planning, wealth transfer, tax and investment management services

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