Several factors are driving the trend toward mergers and acquisition. An aging population of brokers is one, while the increasing complexity brought about by regulation and technology is also playing a factor.

According to Dave Evans, senior vice president at Independent Insurance Agents and Brokers of America, the fact so many brokers are nearing retirement age means the trend toward mergers and acquisitions will likely continue. “If you look at the demographics of the people who own employee benefits shops, they’re aging,” he says. “The demographic trend is certainly going to continue that pipeline over the next 10 to 15 years.”

Many brokers have worked hard to keep up with regulatory changes, and the implementation of the ACA actually created a surge of business for brokers. But the amount of regulatory detail becomes daunting for brokers, and developments such as the DOL fiduciary rule had a similar outsized impact on financial advisors.

The brokerage industry is likely to continue to see upheaval—the Trump administration is working to repeal and replace the ACA, and regulations like the fiduciary rule will also likely see change in some form. Even if the ACA and other Obama-era regulations are not repealed completely, the new administration is bound to have a different regulatory approach, which means changes for plans, brokers, and employers.

“The uncertainty doesn't help,” says Evans. “As an owner, if I’m older and trying to decide my exit strategy, it's one thing to do that in a stable environment. But if I’m increasingly nervous over the regulatory environment, and about continual disruption of technology, that could still be a catalyst for someone like that to sell.”

The quantity versus quality debate

Chris Hartmann, vice president of government affairs for the National Association of Health Underwriters, says smaller brokerages can still be very appealing to small business owners, who need a more high-touch approach.

“Health care is still very complicated,” Hartmann says. “It's not as simple as buying an airline ticket. The smaller broker is able to offer that personalized assistance to the individual and make them more comfortable with the decisions they’re making.”

Hartmann notes the type of company and the type of employee may make a difference in what approach works best. “If you have a company of 20-something employees, they’re comfortable with internet-based tools. But at companies with older employees, there may be more questions and they may require more of a personal touch.”

Evans notes changes in the marketplace are currently favoring larger firms, which can offer specialists in a variety of fields. “You need sophisticated assistance in health care; the notion that you can do business the same old way is outdated,” he says. “You need investment in technology, in data mining. There's increased anxiety over cyber-liability. So there are a number of issues.”

Evans adds that the key to success may not be an either/or equation. “It's probably having both blades of the scissors—the technological abilities coupled with the personal touch,” he says.

Taking advantage of upheaval

Bob Reiff, the president of Lockton Benefit Group, which bills itself as the world's largest privately-owned independent brokerage, says a market which is consolidating may actually make independent firms more attractive.

“Anytime you go through a time of mergers or acquisitions, there's a lot of disruption. There's also a lot of opportunity,” he says. “We’ve stressed the benefit of being a privately held firm. We have personally benefitted from a lot of acquisitions and mergers that are very distracting for producers as well as the client base.”

Evans says amidst the uncertainty, the worlds of finance and health are colliding in the form of HSAs, which will enroll approximately 30 million Americans by the end of 2018. “Consulting and providing expertise on HSAs, that's an intersection between health care and the investment side,” he says. “So the continuing growth of HSAs is also requiring benefits firms to take a step back and see how they can serve that marketplace and what they need to do differently to satisfy the regulatory environment, which then can lead to more mergers and acquisitions.”