(updated with correction)
Combining the defined contribution businesses of Putnam Investments and Great-West Financial — both owned by Great-West Lifeco Inc., Winnipeg, Manitoba — is a smart strategic decision that recognizes record keepers need greater scale to thrive, DC consultants and other industry participants say.
They say the integration process should proceed relatively smoothly because both companies use the same record-keeping system (FAScore, owned by Great-West Financial) and there is little similarity in the markets they serve.
“It makes total sense,” said Martha Tejera, project leader at Tejera & Associates LLC, Seattle, a defined contribution consulting firm. “It gives both organizations a fresh start to leverage their strengths.”
She predicted there would be “minimal impact” on clients of the two firms because their markets don't overlap.
Putnam Investments, Boston, concentrates on the midsize to large 401(k) market. Great-West, Greenwood Village, Colo., caters to the 457 and 403(b) markets, and has many large public defined contribution plan clients. Great-West also concentrates on small-market 401(k) plans.
“There seems to be a lot of natural synergies and not very much overlap,” said Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, who is based in Jupiter, Fla. “The economics of the record-keeping business are challenging. We're poised to see even more consolidation.”
Robert L. Reynolds, president and CEO of Putnam Investments, said in an interview that combining the two defined contribution businesses wasn't predicated on what others in the DC industry were doing or thinking. “It became clear with the Great-West position and our position that if we put this together we would have total market coverage,” he said.
Record keeping, investment products, client servicing, participant education, marketing and web-based services for participants will be combined. The idea had been discussed “for some time,” said Mr. Reynolds. “It got serious in the fall.”
The businesses will retain their separate identities, but will be managed from Greenwood Village. Charles Nelson, president of Great-West Retirement Services, the DC plan unit, will be in charge of integration. Mr. Nelson and Edmund Murphy III, head of defined contribution at Putnam, will report to Mr. Reynolds.
No timetable has been set for integration, Mr. Reynolds said.
No layoffs are planned because “this is all about growth,” he said. “This is all about the future. Both sides bring something to the table.”
Great-West Retirement Services has approximately 2,100 employees; Putnam has about 200 on the defined contribution side. Great-West serves 4.75 million participants; Putnam, 250,000.
Great-West reported $220 billion in record-keeping assets under administration as of Dec. 31. Included in that figure is the $30 billion that Putnam has under administration.
Also, Great-West had $36.4 billion in assets under management for defined contribution plans as of Dec. 31, according to Putnam. But information Great-West reported to Pensions & Investments showed the company had $13.1 billion as of Dec. 31, 2012.
Similarly, a Putnam spokesman said Putnam had $15 billion in defined contribution plan assets as of Dec. 31, but data Putnam submitted to P&I showed the company had about $7.1 billion at year-end 2012.
When asked about the revenue impact of combining the two retirement businesses and whether there would be some redundancy, a Great-West Lifeco spokeswoman declined to comment.
Mr. Reynolds became president and CEO of Great-West Lifeco U.S. Inc. on March 20. He will become president and CEO of Great-West Financial in May. Mitchell Graye has held all of those positions, and is retiring. Mr. Reynolds also will continue to be president and CEO of Putnam.
Mr. Reynolds said Putnam and Great-West staffers have been contacting clients and DC consultants. “We are telling clients, "you will be dealing with the same people and have the same services levels, but you will see improvements,'” he said.
He said there will be the same client service teams and managers.
The early reaction by DC consultants is that the combination isn't a surprise.
“My initial reaction was: It's about time,” said DC consultant Martin Schmidt, referring to the common record-keeping platform and common corporate parent, as well as the different markets served by the companies.
“It makes a lot of sense, even though there will be a lot of details to work out,” said Mr. Schmidt, principal and client services director at HS2 Solutions Inc., Chicago, a retirement plan and technology consulting firm whose DC clients range in asset size from $100 million to $1 billion.
“None of my clients is concerned,” said Jason Chepenik, managing partner of Chepenik Financial Services, Winter Park, Fla. “It should be a smooth transition. If they can operate more effectively and deploy more resources, that's good for my participants.”
Mr. Chepenik has several DC plan clients with Putnam or Great-West Retirement Services. His company's plan uses Great-West.
“It's not an ownership change so it's not being perceived as a big deal by clients,” said Michael Francis, president and chief investment officer of Francis Investment Counsel LLC, Pewaukee, Wis.
“My general impression is that Reynolds is a good manager and he has elevated Putnam's record keeping.” n
