All elements of the outlined contribution business are being affected by consolidation pushed by the necessity for scale, particularly report 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 belongings are coveted and dominated by the most important cash managers on this planet, 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 belongings dropped to $192 billion in 2007 when it was bought to Nice West for $3.9 billion. With progress nonexistent and belongings at about $135 billion, the worth 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 belongings the tip of 2022.
In the meantime, Nice West has been doubling down on the DC report 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, ultimately buying JPMorgan Chase’s giant market report maintaining group to type Empower Retirement. Together with smaller acquisitions, Empower has gone on a shopping for spree, buying MassMutual’s and Prudential’s report keepers to develop into the second largest DC supplier within the US behind solely Constancy.
Although report maintaining 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.
Identical to MassMutual’s choice to promote their report keeper with no clear path to develop into a tier 1 supplier deciding to give attention to annuities, life insurance coverage and their company reps, Empower has doubled down on report maintaining, 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 isn’t actually exiting the asset administration enterprise, simply changing into a stakeholder in a much bigger participant with infinitely extra scale.
Franklin, Putnam and Legg Mason, which Franklin purchased just a few years in the past, held comparable positions within the DCIO market – nicely positioned however and not using a vital footprint within the three crucial areas:
- Goal date funds
- Indexing
- Document maintaining
Although Putnam’s father or mother owned Empower, it was not clear = they acquired particular therapy and will have really been shunned by different report keepers. As lively administration DC charges proceed to say no and the price of distribution rises, Franklin can flex its muscle 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 on account of their presence in not less than 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 position will probably be sufficiently big for him and Murphy’s rising affect and energy, whether or not there’s a place for him there.
Advisors and CIOs at report keepers, RPA aggregators and dealer/sellers might want to maintain a detailed eye on which portfolio managers depart, requiring further due diligence. Little doubt there will probably be larger attrition within the operations and distribution teams as value chopping will need to have been an enormous driver within the deal, simply because it was with Legg Mason, which may have an effect on a lot of Putnam’s 1,200 staff, principally in Boston.
Whereas the DC market is rising and will explode with hundreds of thousands of latest plans, the convergence of wealth, retirement and advantages at work, in addition to in-plan retirement revenue that would change a number of the $500 billion that go away DC plans for IRAs, it should take scale, capital, know-how and the appropriate 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 referred to as pure evolution and choice.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
