Charles Nelson insists that Great-Wests latest round of acquisitions is only the beginning. A 24-year veteran at Great-West, Mr. Nelson has led Great-West Retirement Services, a subsidiary of Great-West Lifeco Inc., Winnipeg, Manitoba, in making several significant acquisitions in the defined contribution arena in the past year, including U.S. Bank & Institutional Trust & Custody and Metropolitan Life Insurance Co. Great-West Lifeco also agreed earlier this year to acquire Putnam Investments and Putnams 25% in T.H. Lee Partners for $3.9 billion from Marsh & McLennan Cos. Inc.
As Great-West continues to integrate three major deals, Mr. Nelson says theres much more to come. The Denver-based firm now manages $109 billion in retirement plan assets in the U.S. At a time when other financial services firms are outsourcing or selling their defined contribution businesses, Great-West officials see tremendous opportunity. Executives are interested in building scale, expanding the product line and being a dominant presence in the DC market.
Talk to me about the deal for Putnam. Were very, very excited about this deal. Putnam is a world-class asset management organization and we are delighted to welcome them. That said, Putnam will operate as a separate entity and I will not directly oversee that business. Putnam brings management expertise, superior investment products and tremendous experience within this business. We see it as a perfect fit. ...
Are more acquisitions on your radar? Yes, more acquisitions are definitely on the radar. Weve enjoyed very strong organic growth, but we also recognize that in a segmented market, it will continue to consolidate and we will take advantage of that. We are actively seeking acquisitions.
What do you look for? First, you have to make sure the acquisition makes sense for clients. After that, we consider things such as capacity, the complexity of the business, the financial metrics and (making) sure its core to the products and services we offer, and the potential to adding more human resources to our team. Thats what we did with U.S. Bank and MetLife as well.
What did U.S. Bank and MetLife add to your business? The primary thing was adding distribution channels that we didnt have access to previously. With the U.S. Bank transaction, we will continue to offer a product to U.S. Bank clients. We became the preferred record keeper for those clients. With the MetLife transaction, it was similar. We (previously) didnt distribute through two of their three agency channels.
Which trends are you following? We work hard to try to provide clients with solutions and we are tracking research around behavioral finance to offer the best products. Research has told us that automatic programs and managed accounts make a lot of sense. Plan sponsors are supporting this to keep assets within their plan. Employers have figured out that instead of rolling assets out, they can keep assets in the plan and you could get better service, better investment options and a better price. One of our largest clients, the City of New York, just introduced their own IRA program, as an example.
What exactly did New York do? There are a lot of strong IRA providers, but the city decided to offer an IRA inside the plan. So they have a 401(k), a 457 plan and an IRA where participants can consolidate rollover assets within the plan.
Do many plans do that? I dont know of any others. I think what they decided to do is pretty unique.
Are managed accounts a big part of your business? Absolutely; weve seen tremendous growth of that. We have over $1 billion in assets and its growing $100 million to $200 million a month. Clients are selecting managed accounts for behavioral finance reasons. More and more participants just want their money managed. And its more advantageous and dynamic than a target-date fund. Target-date funds are static and impersonal.
Talk to me about automatic enrollment. We are very committed to auto enrollment. Its the best thing to happen for clients in many, many years. These programs are extremely beneficial. Weve been rolling this out for some time and clients are really starting to embrace it.
Are clients embracing these programs because of the Pension Protection Act of 2006? Absolutely. Many plan sponsors were waiting for that green light. The PPA gave it to them, to those that were on the fence. We are seeing more clients act on auto programs including auto enrollment and auto escalation features. We, along with just about everyone else, will think that will continue in the years to come. And thats a very positive thing.
Was there anything not in the PPA that you would have liked included? The PPA was a landmark piece of legislation. Thats a given. I would have hoped that there would have been more clarification about regulations on the back-office side. Some of the provisions create a lot of unnecessary paper notices. Secondly, I feel that the PPA could have done more to support DB plans. A lot of plan sponsors would have liked that. Many of our clients still have, and value, their DB plans.
What are the biggest trends in the government sector? Public sector clients want us to coordinate DB and DC more than ever. And we have expanded our total retirement service for the public sector. Its a little more tailor made and its a more one-voice approach. What we do for them is we coordinate all the education and communication, their statements, websites, call center and everything else. Plan sponsors want that integration. They want everything nice and neat.
Are your clients concerned about fee disclosure guidelines? Within the industry, fee disclosure is about making sure plan sponsors and participants are provided with information about their expenses. Weve had a long history of disclosing this. Plan sponsors and participants must absolutely know what they are paying, who they are paying and which services they are paying for. We take this very seriously and have the best interests of clients in mind.
What is Great-West doing to help clients with fee disclosure guidelines? What were doing is what weve been doing for many years. They need to know every detail about every fee. We make sure we show them the details and that they receive it in a wide variety of media. We reach out to clients through the Web, mail, through phone representatives, and one-on-one meetings. It cant be said enough how important it is that they understand what they are paying for.
Do annuities belong within a 401(k) plan? Annuities do have their place in the market and could be valuable tools for retirement planning. Annuities inside of a 401(k) plan can be appropriate for certain plans. For us, we do offer annuities for the micro to small market.
Would Great-West consider offering an annuity option within a 401(k) plan? Its too early to tell if we would get into that business. We are an insurance company, but its too early.
Where do you see Great-West in five years? Were as committed as we were 101 years ago when Great-West opened its first sales office in the U.S. In the short term, we want to continue to build our relationships with advisers and we will seek appropriate acquisitions.
What keeps you up at night? I generally sleep pretty well. We have a broad book of business and a dedicated group of employees and that helps me sleep well. One thing that keeps me up is the ways we earn the right to do business with clients. Each day in business, you get a new report card. I want to make sure we do right by them.