In this week's edition of 401(k) Real Talk, Fred Barstein, a seasoned industry expert and CEO of The Retirement Adviser University, delves into the latest developments in the financial landscape. Barstein's analysis is a must-read for anyone seeking an honest and insightful take on the industry's most pressing issues.
Job Market Slowdown and Inflationary Pressures
Barstein begins by addressing the recent slowdown in job growth, highlighting the creation of just 57,000 positions in June, with April and May numbers revised downward by 74,000. He notes that wage increases have failed to keep pace with soaring inflation, primarily driven by higher gas prices and tariffs, and exacerbated by a larger number of people out of work for extended periods since the pandemic. The jobless rate has fallen due to a shrinking workforce, partly attributed to strict immigration policies, which are expected to become even more stringent following the Supreme Court's decision to strike down Temporary Protection Status.
The uncertain economy and persistent inflationary pressures, coupled with companies' increasing reliance on AI, suggest that hiring will remain subdued and interest rates are unlikely to see a significant change anytime soon. Barstein's commentary underscores the complex interplay between economic factors and their impact on the job market.
Hub International's IPO and Strategic Acquisitions
Moving on to the next story, Barstein discusses Hub International's confidential draft registration, signaling its long-awaited initial public offering (IPO). He highlights the company's impressive valuation of $29 billion in a recent funding round, which includes T Rowe Price. This valuation represents a significant increase from the $4.4 billion valuation when Hellman & Friedman took Hub private in 2013, with Leonard Green's investment in 2023 at a $23 billion valuation. Hub's current revenue stands at $5.2 billion, with EBITDA ranging from $1.3 to $1.6 billion.
The Retirement and Private Wealth division, which generated $300 million in revenue in 2019 after Hub's acquisitions of Sheridan Road and GRP, has been on an acquisition spree, with a strong focus on wealth firms. Barstein notes that companies preparing for an IPO often undergo cost-cutting measures, layoffs, and operational streamlining, while also investing in infrastructure and compliance. This strategic approach ensures a smooth transition into the public market.
Record Keeper Technology and Advisor Priorities
In a thought-provoking column, NMG Consulting partner Josh Dietch highlights a critical aspect of the industry. Dietch observes that advisors are prioritizing record keeper technology over cost, a phenomenon Barstein refers to as the 'silent differentiator.' According to the NMG DC Advisor Insights study, hybrid advisors, who focus on wealth management while maintaining a robust defined contribution (DC) practice, seek providers that remove friction and simplify business operations. RPAs, on the other hand, prioritize record keeper technology to enhance efficiency, integrate platforms, and offer fiduciary analytics and participant engagement.
Barstein agrees with Dietch's observation, emphasizing that tech and wholesaling costs are the largest expenses for record keepers. While fees may not be the top priority, they will play a pivotal role in breaking ties between providers, leading to further consolidation in the industry. Barstein also highlights the tension between RPAs and hybrids, as the latter prefer partners rather than competitors.
Empower's Acquisition of Milliman's Retirement and Benefits Administration
The final story in Barstein's analysis involves Empower's acquisition of Milliman's retirement and benefits administration. With approximately 750,000 participants in both defined contribution (DC) and defined benefit (DB) plans, and $50 billion in DC assets, the acquisition is significant. Barstein suggests that the crown jewel of this deal is the benefits administration, as Empower aims to integrate wealth, retirement, and benefits services at the workplace.
Barstein's commentary extends to the potential integration of healthcare and benefits services, drawing parallels to the challenges faced by DC plans two decades ago in terms of fee and fiduciary scrutiny. He speculates that Empower's strategic move may be a response to the evolving landscape of healthcare and benefits administration, mirroring the industry's need for comprehensive solutions.
In conclusion, Fred Barstein's 401(k) Real Talk episode offers a comprehensive and insightful analysis of the week's most significant financial news. His commentary provides a unique perspective, blending factual information with personal interpretation, making it an essential read for industry professionals and investors alike.
