Recordkeeper Consolidation Spurred by Fee Compression and Technology Disruption

The recordkeeping segment of the defined contribution (DC) retirement plan industry is undergoing a rapid and potentially irreversible transformation. The forces driving this shift include fee compression, rising service and technology costs, and the automation of recordkeeper due diligence, and are pushing the industry toward massive consolidation. For many providers, the path ahead will require a fundamental change in business model, or an exit strategy.

A Business Model Under Siege

For years, recordkeepers operated on a relatively stable business model: charge a plan-level fee, offer a menu of services, and attempt to differentiate through technology, service quality, or investment flexibility. But several converging trends are challenging that framework. Fees are declining, especially in the mid- and large-market segments, while the cost of maintaining competitive technology platforms and servicing increasingly complex plan needs continues to rise.

These pressures are disproportionately affecting smaller and mid-tier recordkeepers, many of whom struggle to keep up with the capital and scale advantages enjoyed by dominant providers. As McKinsey has observed, firms that fail to shift from a product-centric to a participant-centric model will find it increasingly difficult to compete—particularly against recordkeepers with proprietary investments, distribution scale, and the ability to monetize participant engagement through cross-selling.

The Rise of Automation and Its Fallout

Compounding this squeeze is a game-changing development: the automation of the recordkeeper RFP and due diligence process, spearheaded by platforms like Catapult HQ. Where once the RFP process involved extensive manual work, large advisory firms and aggregators are now running dozens of RFIs and RFPs in minutes, at scale, with instant or customized pricing comparisons.

This automation is radically narrowing the playing field. According to Catapult founder and CEO Justin Witz, “Ninety percent of recordkeeper RFPs are going to just ten providers.” For one major aggregator, 88% of its RFPs since 2020 have gone to only five firms. This concentration is devastating for recordkeepers who can no longer count on regular opportunities to pitch their services and are instead watching the flow of inbound opportunities dry up.

Witz adds that some recordkeepers are spending upwards of $7 million annually on salaries and over $1 million on technology just to stay competitive in the RFP process, costs that are increasingly difficult to justify when win rates continue to decline.

Fee Pressure and Cross-Selling Raise the Stakes

Recordkeepers that do win business often do so at significantly lower price points. One aggregator has reportedly secured pricing 25% lower than market norms, especially when the chosen recordkeeper’s proprietary investment options are used. And with “pay to play” arrangements and revenue-sharing models increasingly common, larger advisory firms are leveraging their negotiating power, leaving smaller, less diversified recordkeepers with fewer cards to play.

There’s no clearer sign of market distress than valuation shifts. The recent low sales price of OneAmerica’s retirement business shocked the industry and foreshadowed what may lie ahead for others lacking scale. Two recordkeepers are seeking buyers but finding little interest.  As Witz bluntly noted, “Some are trying to catch a falling knife.”

A Fragmented Market in Flux

Despite these trends, Catapult still lists 40 active recordkeepers on its RFI system and 90 through its RFP platform, a number that, by any reasonable business standard, far exceeds sustainable market demand. The reality is that most of these firms cannot survive long-term unless they find niche markets or reinvent their offerings entirely.

Meanwhile, dominant firms like Fidelity, Schwab, and Principal continue to grow organically, Empower expands through acquisition, and fintechs like Vestwell are posting the fastest overall growth. The small-plan segment is also booming, driven by state mandates, tax credits, and PEPs. This requires recordkeepers to rethink their distribution models for non-specialist advisors, often leaning on internal sales desks instead of traditional wholesaling.

An Existential Moment

The defined contribution market is no longer a sleepy corner of the financial services industry. With $12.5 trillion in assets and 121 million participant accounts, the stakes are enormous. But the ecosystem is complex, with many interdependent players including recordkeepers, TPAs, asset managers, advisors, and technology providers. All of which are all feeling the ripple effects of disruption.

At the recent RPA Recordkeeper Roundtable, held in Washington, DC, industry leaders acknowledged that the traditional playbook is no longer viable. From AI-driven efficiencies to the growing convergence of wealth, retirement, and benefits, the message was clear: evolve or exit.

The Defined Contribution recordkeeping business is facing its own “active management moment.” Providers that fail to adapt risk fading into irrelevance or being acquired at distressed valuations. Embracing automation, participant-centric models, and integrated distribution strategies will enable companies to thrive in a competitive market.