Though the Internet has opened up opportunities for niche players in some markets, in the DC retirement business, size still matters — as witnessed by Great-West’s April 3 announcement that it will acquire JP Morgan’s DC record keeping business. The combined entity will have $387 billion and serve 6.8 million participants, making it the second-largest provider in the DC market focused on 401(k), 403(b) and 457 plans. It is a true juggernaut.
Last month, Great-West announced its merger with Putnam, which was less stunning since they were both owned by the same Canadian parent. As we observed at the time, providers without a true multi-market strategy will struggle in the future, even if they are doing well in their segment, singling out JP Morgan as an example.
Though the firm had built a strong business in the large and mega markets and had one of the largest average plan sizes in the business, its mid- and small-market initiatives — as well as its efforts to sell through advisors — never took off. The firm struggled to be profitable, trying recently to insert more proprietary funds — a step that is more difficult in the larger markets, especially when it represents a change in strategy.
The bank itself had struggled with regulators — not just in the wake of the mortgage crisis, which resulted in a huge fine, but also with concerns about cross-selling products to bank clients. With the sale, only two of the major retail banks — Wells Fargo and Bank of America — now own major record keeping businesses.
JP Morgan will focus on the DCIO market under the leadership of Mike Falcon — a business that the current head of record keeping, David Musto, built with Allianz’s Glenn Dial before Musto moved to the record keeping business. The sale might actually help JPM’s DCIO business since it removes any conflicts with other record keepers.
Going forward, Musto, along with Charlie Nelson and Ed Murphy, will report to Bob Reynolds. The deal is expected to close in Q3; terms were not announced.
With only 200 clients, very few of which are represented by plan advisors, the sale should not have a significant immediate impact on advisors. But going forward, Great-West represents the model of what the record keeper of the future could look like — with multi-market, plan and distribution strategies combining industrial-strength record keeping, cutting edge innovation and a seat at the limited mega-market 401(k) table, as well as the capital to force other competitors to try to catch up or just give in. Look for more consolidation to follow, especially among providers that have limited assets and participants and are focused primarily on one market segment. (Click here for additional commentary about how the JP Morgan deal reflects power shifts in the industry.)
