In a deal that took much longer to integrate than to consummate, Principal Financial Group Inc. on July 1 will have put the final touches on absorbing the institutional retirement and trust business of Wells Fargo & Co.
It took two years for Principal to complete the combining of the two businesses, although the formal transition started in October 2020. The combined business represented $470 billion in assets under administration with 9 million eligible participants as of March 31.
It took five months from starting negotiations to signing an agreement on July 1, 2019, for Principal to pay $1.2 billion for Wells Fargo's record-keeping business as well as administration of its defined benefit and employee stock ownership plan businesses, executive deferred compensation program, institutional asset advisory business, and trust and custody offerings for the retirement and non-retirement markets.
The two-year integration reflected Principal's systematic approach, said Renee Schaaf, president of retirement and income solutions for Des Moines, Iowa-based Principal. It took time to communicate the changes to the various Wells Fargo clients and participants, to incorporate some of Wells Fargo's services under the Principal banner and to enhance or add services, she said.
During the transition period, Wells Fargo Bank, an affiliate of Wells Fargo & Co., maintained record keeping, trustee and custody services for the Wells Fargo clients until Principal took on each of these sponsors. The transition took place in waves — five in all — because different Wells Fargo clients had different characteristics and requirements, Ms. Schaaf said. By July 1, the Wells Fargo name for record keeping will be history.
Combining the record-keeping businesses has led to a series of enhancements, including "retirement technology upgrades for better record-keeping services," Ms. Schaaf said. "We now have an address indicator to help plan sponsors maintain accurate plan records, improved services and efficiencies for compliance testing, and a third-party defined benefit calculation tool that determines participant benefits."
Clients will benefit from "more robust plan sponsor reporting, new managed and self-directed brokerage account capabilities, (and) participant engagement dashboards," she added.
A Principal feature enables "benchmarking against plans of similar industry, participant count and total plan assets," Ms. Schaaf said. "Our plan sponsor platform now has enhanced features including easier-to-access participant information, tasks and to-do lists at a glance, and greater visibility for the most common administrative tasks."
In October, Principal launched a digital services program that "promotes retirement savings best practices and provides access to tools, resources and guidance that will help all existing and new participants take informed actions to help improve plan outcomes," she added.
The headline for the Wells Fargo deal was giving Principal greater access to larger defined contribution plans.
"Prior to the acquisition, Principal was best known for record-keeping plans under $10 million, although we had some fairly big plans," Ms. Schaaf said. "Wells Fargo is heavily weighted to midsized and large plans."
According to annual record-keeping surveys by Pensions & Investments, Principal had $208.8 billion in assets under administration as of Sept. 30, 2018, placing eighth; Wells Fargo Institutional Retirement & Trust placed 10th with $207.5 billion.
At that time, Principal clients with 999 or fewer participants accounted for 74% of AUA while sponsors with 10,000 or more participants accounted for about 14%. By Sept. 30, 2020, however, the most recent P&I survey for all record keepers, the combined AUA of Principal and Wells Fargo was $386.8 billion, good for seventh place. Clients with more than 10,000 participants rose to 27% of AUA while clients with fewer than 999 participants dropped to 40% of AUA.
Before the acquisition, Principal placed eighth in the number of participants with 5.12 million, while Wells Fargo placed 10th with 3.47 million. By Sept. 30, 2020, the combined participant total of 8.39 million put Principal in third place.
"We expected some lost clients in the migration and the number has been right in line with expectations," said Alex Ortolani, a Principal spokesman. "This is consistent with any such transaction like this in the marketplace and we noted it on our call with investors when the deal was announced. We are nearing completion of our final migration wave and it has been a very successful journey."
Ms. Schaaf said the decision to buy the Wells Fargo business rather than expand Principal's services on its own was an easy choice. "This gives us so much scale all at once," she said. "If we just had grown organically, we estimate it would have taken 10 years" to achieve the size and scope of the Wells Fargo addition.