Vanguard Group Inc.'s move to transfer operations of its record-keeping business to India-based technology firm Infosys should help the firm achieve two long-standing goals: drive down costs and ramp up its technology capabilities.
And if the partnership proves successful, some industry observers believe it could set a new precedent for the record-keeping industry.
Through this partnership announced on July 14, Infosys will handle the software platforms, administration and associated processes of Vanguard's record-keeping business, which had more than $560 billion in assets under administration as of June 30.
In addition to assuming the day-to-day operations of the record-keeper business, Infosys will also lift out 1,300 record-keeping employees from Vanguard and place them in comparable positions within Infosys.
Among these Vanguard Group employees migrating to Infosys is the firm's institutional investor group head, Martha King, who will be chief client officer of Infosys and head the company's new Mid-Atlantic Retirement Services Center of Excellence.
Ms. King said in an emailed statement that "Vanguard clients will be the direct beneficiary of ... Infosys's world-class technical expertise and scale." The transition is set to occur Oct. 12.
"Now is the time for large-scale innovation in the defined contribution business," said Infosys President Mohit Joshi in a separate statement. "In particular, there is a critical need for more efficient and automated systems, and to inspire better investor behaviors through richer data."
Mr. Joshi added that Malvern, Pa.-based Vanguard and Infosys "will deliver the industry's first fully cloud-based platform, provide sponsors with streamlined transaction processing, AI-driven insights, and anywhere/anytime/any device secure access to information."
Despite the transferring of operations and staff to Infosys, Vanguard spokeswoman Emily M. Farrell clarified in an email that "this is and will continue to be Vanguard's record-keeping business," and that "very distinct client service functions and responsibilities will reside solely in Vanguard."
Specifically, Vanguard's relationship management teams and strategic plan design and communication staff will continue to service the firm's plan sponsor clients through its institutional investor group, now led by John James.
Vanguard will also continue to oversee the investment management and guidance services for both sponsors and participants.
In addition, having Infosys handle the software platforms, administration and associated processes of the record-keeping business will enable Vanguard to further invest in a redesigned participant website, integrated advice and intuitive technologies, Vanguard said in the news release announcing the deal.
For many industry observers, this partnership makes sense. According to Lew Minsky, president and CEO of the Washington-based Defined Contribution Institutional Investment Association, teaming with Infosys allows Vanguard to explore new technologies such as artificial intelligence and blockchain and "focus on their core strengths and bring in a partner that leads on digital and technical innovation."
"I'm sure the two organizations will discover true synergy from the partnership," Mr. Minsky added.
Partnering with Infosys also solves a problem that Vanguard has faced in recent years. Although Vanguard has invested heavily in its technology capabilities, the firm has still struggled with technical difficulties, ranging from overwhelmed call services to glitches in online connectivity to plan participants receiving incorrect account information. Some of these problems have been the result of the firm lowering costs while its business experiences rapid growth.
"Vanguard has had a myriad of technology issues across the complex," said Daniel P. Wiener, editor of the Potomac, Md.-based newsletter Independent Adviser for Vanguard Investors, which has no affiliation with the company. "Outsourcing to an outfit that's all about technology makes a lot of sense. It allows them to get that stone off their back."
Even Ms. King admitted that working with Infosys will solve Vanguard's problem of working with outdated technology. In a video announcing the partnership, she said that Vanguard has managed its business "using mainframe system platforms that run software that's decades old."
The other big advantage that Vanguard gains from this deal with Infosys? It allows them to cut costs without compromising on service.
"Costs are always going to be a competitive issue for Vanguard," Mr. Wiener said. "They're the low-cost leader."