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Just what good Bob Reynolds' purchase of J.P. Morgan's billions -- sans sweet brand -- will do for his Great West-Putnam 401(k) empire

The Boston exec was opportunistic in getting this deal and remains open to others but the 'O' word that made Whole Foods famous is holding sway

Friday, April 4, 2014 – 5:01 AM by Lisa Shidler
Admin:
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Bob Reynolds: They reached out and asked if we'd like to buy their proprietary business.

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Stephen Winks

Stephen Winks

April 4, 2014 — 7:16 PM

It is all about managing institutionalized inefficiencies in rendering individualized personal advice at the participant level—the 401(k) holy grail. This can be expertly done at 30% of the cost of Fidelity’s platform. So, why wouldn’t Fidelity adapt? They wouldn’t if they owned the market, which of course is not the case. In a free market expert intermediaries who act in the best interest of the investing public are the determinants of market share and they have no choice if they are to act in a fiduciary capacity.

Great West, Fidelity and the entire 401 (k) space should not assume the industry’s business environment is immune to innovation and the statutory duty to fulfill ongoing fiduciary duties made possible by advanced technology and modern approaches to portfolio construction.

What happens when advanced technology and outdated approaches to portfolio construction render the flipping of high cost mutual funds obsolete? The industry is reordered around the consumer’s best interest. Having embedded proprietary mutual funds is no longer an economic advantage. Far superior counsel results at a fraction of the cost that accords the advisor professional standing. Importantly the advisor’s services and value added figures more prominently than the utilization of a fund which by definition can not be client specific.

SCW

Philip Chao

Philip Chao

April 4, 2014 — 7:49 PM

This is truly significant news and to a lesser extent, I am not surprised by JP Morgan exit.

Great-West/Putnum, under the leadership of Bob Reynolds, and with the serious commitment from its owner, Power Financial, is demonstrating their serious commitment in the retirement plan recordkeeping and DCIO business. This combination allows GreatWest/Putnam/JPMorgan to offer the scope and scale of services to every plan size (by assets and by participants) and every industry sector. The recent appointment of Bob to head both Great West and Putnam was the first step in preparation for the JP Morgan acquisition and demonstrates the significant commitment and reliance on Bob to make the combined operation profitable, significant and first class.

JP Morgan Retirement Plan Services has a great reputation in the mega plan arena. Over the past several years, JP Morgan has been struggling to scale its recordkeeping business and make it a profitable standalone unit. Even though the recordkeeping component is not considered a core banking service, the sale to GreatWest/Putnam shows how challenging the retirement recordkeeping business has become and that, in this business, “size” really matters. We are fast becoming a world where only a few recordkeepers survive and prosper with fewer differentiation among them (be careful of the commoditization of this business). The platforms will be owned by a handful of mega recordkeepers using an open-architecture investment platform to offer every investment available. For those recordkeepers with proprietary products (such as Putnam for mutual funds and Schwab for ETFs) to cross sell their products and services they hope that one or more of their funds will fall into the investment lineup. Further, I envision a similar open-architecture platform for annuity contracts where the plan sponsor will offer a number of annuity contracts from insurance carriers as a solution for participants to generate “guaranteed” income post retirement. Again, for those recordkeepers with proprietary insurance products (such as Great-West), they hope that their annuity contracts will be among the product lineup for participant selection. A lot of efficiencies and benefits (cutting duplications, jobs, increase automation, upping productivity, attracting the best in the business) should be derived from this.

There is no question that having one of a handful of dominant/surviving recordkeeping systems is nothing less than being Amazon, Ebay, Wal-Mart, Target and CVS of the retail world. Except, this is a distribution system for investment and insurance products with significant stickiness. It is all about the control of flow (contributions) and product placement (mutual funds and annuities). It is clear now that JP Morgan’s efforts to be in the top three among recordkeepers are abandoned. Even with the seemingly unlimited war chest, JP Morgan could not dominate the market. In today’s Big Data environment, the company that owns or controls the data wins. A recordkeeper knows all about its participant behavior and plan designs and when applied properly can be the driver of positive change in the low savings and poor investment decision retail world.

In a way, JP Morgan is in a better position. It no longer needs to side step the conflict of pushing their own label mutual funds onto the plan sponsors using their recordkeeping system. JP Morgan can now be free to DCIO all they want. On top of that they can save millions by not being in the low margin (at best) recordkeeping world that many asset managers and bankers treat as a step child.

Kudos to Bob Reynolds. Let the show begin.

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