All points of the outlined contribution business are being affected by consolidation pushed by the necessity for scale, particularly file keepers and retirement plan advisors, but in addition asset managers and dealer/sellers. Although the outlined contribution enterprise is simply part of asset managers’ and b/d’s companies, retirement plan property are coveted and dominated by the biggest cash managers on the earth, resulting in the sale of Putnam Investments to Franklin Templeton.
As soon as a highflier with $371 billion in AUM in 2000, Putnam was hit by the mutual fund scandals as property dropped to $192 billion in 2007 when it was bought to Nice West for $3.9 billion. With development nonexistent and property at about $135 billion, the value Franklin paid to the Energy Group in Canada and the Desmarais household for Putnam was a reported $925 million with simply $100 million in money plus 6.2% of Franklin Templeton, which had about $1.4 trillion in property the tip of 2022.
In the meantime, Nice West has been doubling down on the DC file keeper enterprise combining their small market group with Putnam’s mid-market 401(ok) division quickly after Bob Reynolds and Ed Murphy joined Putnam in 2008, finally buying JPMorgan Chase’s giant market file retaining group to kind Empower Retirement. Together with smaller acquisitions, Empower has gone on a shopping for spree, buying MassMutual’s and Prudential’s file keepers to turn into the second largest DC supplier within the US behind solely Constancy.
Although file retaining is regarded as a low margin enterprise, particularly when in comparison with asset administration, it seems Nice West sees potential, particularly by leveraging their $1 billion acquisition of robo advisor Private Capital and 20 million DC contributors.
Similar to MassMutual’s resolution to promote their file keeper with no clear path to turn into a tier 1 supplier deciding to concentrate on annuities, life insurance coverage and their company reps, Empower has doubled down on file retaining, conceding that their foray into asset administration was not what that they had anticipated.
With a wholesome stake in Franklin, which can obtain $25 billion in asset allocations from Nice West in addition to particular therapy with Empower, Putnam is just not actually exiting the asset administration enterprise, simply turning into a stakeholder in an even bigger participant with infinitely extra scale.
Franklin, Putnam and Legg Mason, which Franklin purchased a couple of years in the past, held comparable positions within the DCIO market – properly positioned however with out a important footprint within the three crucial areas:
- Goal date funds
- Report retaining
Although Putnam’s mother or father owned Empower, it was not clear = they obtained particular therapy and should have truly been shunned by different file keepers. As lively administration DC charges proceed to say no and the price of distribution rises, Franklin can flex its muscular tissues whereas having fun with a honeymoon interval and sweetheart relationship with Empower placing strain on the competitors apart from the six that dominate the DCIO business resulting from their presence in a minimum of one of many three crucial areas.
Reynolds, who created and led Constancy’s DC enterprise, is alleged to be staying on with Nice West to supervise the combination and Franklin’s relationships with Nice West and Empower, however uncertain this function might be large enough for him and Murphy’s rising affect and energy, whether or not there’s a place for him there.
Advisors and CIOs at file keepers, RPA aggregators and dealer/sellers might want to hold a detailed eye on which portfolio managers depart, requiring further due diligence. Little question there might be better attrition within the operations and distribution teams as price slicing should have been an enormous driver within the deal, simply because it was with Legg Mason, which may have an effect on lots of Putnam’s 1,200 workers, principally in Boston.
Whereas the DC market is rising and will explode with thousands and thousands of latest plans, the convergence of wealth, retirement and advantages at work, in addition to in-plan retirement earnings that would exchange a number of the $500 billion that go away DC plans for IRAs, it should take scale, capital, know-how and the correct folks possibly with completely different vastly talent units. Solely a only a few will survive and thrive whereas others like Putnam, Legg Mason, MassMutual and Prudential, to call only a few, as soon as highfliers within the DC business, have conceded, specializing in different areas the place they’ve an opportunity to be extra profitable. It’s known as pure evolution and choice.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.