EFE Names Former Personal Capital Head Jay Shah as CEO
Shah, who until January was running Empower’s consumer wealth management division, will head EFE as current CEO Larry Raffone takes the role of chairman.
Edelman Financial Engines announced Wednesday that Jay Shah, the former president of Empower Retirement’s Personal Capital, will become the firm’s CEO as of August 18.
EFE’s current CEO, Larry Raffone, who had held the position since January 2015, will transition to become chairman of the board while remaining a meaningful shareholder, the firm announced.
Shah takes the new post about five months after leaving as head of Empower Retirement’s Personal Capital on December 31, 2022. Shah had been running Personal Capital since 2017, including after Empower, the nation’s second-largest recordkeeper, acquired the company for about $1 billion in June 2020.
“I have long admired Edelman Financial Engines, and I see incredible opportunity in pairing the distribution opportunities of the workplace business with the best financial planners in the industry,” Shah said in a statement. “We have an incredible opportunity to deliver world-class, face-to-face, phone-based, and digital financial planning experiences to help more people lead better lives—from their first paycheck through retirement.”
Raffone has been with EFE for more than two decades, including as president of Financial Engines since November 2012 and as CEO and a board member since 2015. He led the company through the buildout of the Financial Engines retail capability and the merger with Edelman Financial Services in 2018, resulting in what is now EFE.
At the time of the merger, Financial Engines was the country’s largest independent investment advisory, and Edelman Financial Services was an independent financial planning and investment management firm. The firms were combined via an acquisition by private equity firm Hellman & Friedman.
“Having the opportunity to lead EFE through such incredible transformation has been the highlight of my career,” Raffone said in a statement. “As we continue to evolve for our clients, I am confident in Jay’s leadership and look forward to my new role where I can support Jay and the team as they pursue the firm’s strategy for the future.”
New York-based Edelman Financial Engines is the wealth manager option for more than 10 million retirement plan employees, according to the firm, and is the largest managed account provider for defined contributions plans as of the end of 2022, according to the latest data from consultancy Cerulli Associates.
In March, Empower Empower announced a new Empower Wealth Division headed by Carol Waddell. The division, which includes Personal Capital, will focus on providing retirement plan participants with “the next generation of advice through people and technology,” Waddell said at the time.
Global asset manager Franklin Templeton announced Wednesday it has entered an agreement to purchase Putnam Investments for $925 million, further boosting its asset management scale and capabilities in the retirement plan space.
Franklin Templeton, a division of Franklin Resources Inc., has agreed to purchase Boston-based Putnam from parent firm Power Corp. of Canada in a “strategic partnership” that give’s Power Corp.’s Great-West Lifeco Inc. a 6.2% stake in Franklin, the firms announced.
Great-West, which also owns Empower Retirement, will commit $25 billion to Franklin Templeton’s “specialist investment managers” within 12 months of the deal closing, with that amount expected to increase over the next several years, according to the announcement. Empower is the country’s second-largest retirement recordkeeper behind Fidelity Investments.
The deal is designed to speed up Franklin Templeton’s growth in the retirement sector and, if completed, would increase its defined contribution assets under management to about $90 billion, according to the announcement.
“The strategic partnership aligns with Franklin Templeton’s focus to further grow insurance client assets and significantly broadens the relationship between Franklin Templeton and the Power Group of Companies in key areas of retirement, asset management and wealth management,” San Mateo, California-based Franklin Templeton stated in the announcement.
The announcement did not address the role that will be played by current Putnam President and CEO Robert Reynolds or other executives at the firm.
“We look forward to joining Franklin Templeton in this next phase of our growth, as we come together to serve our clients, upholding our commitment to them and their needs,” Reynolds said in a statement.
Along with his role at Putnam, Reynolds was president and CEO of Great-West Financial from 2014 to 2019, and he also held a senior position at Fidelity Investments as vice chairman and chief operating officer from 1984 to 2007.
Equity Play Franklin Templeton will purchase Putnam primarily with $825 million in equity up-front at closing and $100 million in cash 180 days after closing, the firms announced. The deal also includes as much as $375 million in contingent payments tied to revenue growth from the partnership. The transaction is expected to close in the fourth quarter of 2023.
“This is a compelling transaction for Franklin Templeton, and we are excited about the numerous opportunities that will be unlocked by this long-term strategic partnership with the Power Group of Companies, including Great-West,” Jenny Johnson, president and CEO of Franklin Templeton, said in a statement. “Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton’s defined contribution AUM.”
For Franklin Templeton, the deal adds scale to its AUM, capabilities and client relationships, says Dick Darian, founder and CEO of Wise Rhino Group, a retirement sector M&A advisory. He notes that the firm, though looking for creative ways to grow the business, is dwarfed in the space by players such as BlackRock, Vanguard and State Street. As asset managers face compressed fees and increased investment personalization from investment firms, further consolidation is “inevitable,” Darian says.
“Anyone looking at the asset management industry can see it has to consolidate,” Darian says. “There are too many players adding too little value, and the customer is demanding more for less.”
The deal adds to Franklin Templeton’s active pace of acquisitions. Most recently, the company announced earlier this month the acquisition of volScout LLC, a startup that provides separately managed accounts and manages investor portfolios, adding to the managed option solutions on offer to advisers serving institutional clients and high-net-worth investors, according to an announcement at the time.
Most significantly, in 2020, Franklin Templeton expanded its institutional footprint with its acquisition of Legg Mason and its multiple investment affiliates, which, at the time, managed more than $806 billion. At the time, the company announced that the acquisition established Franklin Templeton as one of the world’s largest independent, specialized global investment managers, with a combined $1.5 trillion in AUM across one of the broadest ranges of investment teams in the industry. The combined footprint of the organization was intended to significantly deepen Franklin Templeton’s presence in key geographies and create an expansive investment platform well-balanced between institutional and retail client AUM.
Great-West Still Committed
The Great-West shareholder position in Franklin Resources will continue the firm’s ongoing “commitment to asset management,” the announcement said, even as it exits ownership of Putnam, which had $136 billion in asset under management as of April 2023.
“This transaction furthers Great-West’s strategy of building strategic partnerships with best-in-class asset managers to support our clients’ retirement, insurance, and wealth management needs,” Paul Mahon, president and CEO of Great-West, said in a statement.
For Great-West’s Empower retirement business, the sale of Putnam may be part of a strategy to stay close to the revenue generated from asset management without the conflict of interest that can arise from the recordkeeper’s push into participant advisement and consumer wealth management, says M&A consultant Darian.
“I would look at the investment component [of the transaction] and think that Great-West is saying, ‘We are not going to scale Putnam as we are investing in other things, so first, let’s sell Putnam when it’s probably at the best price right now. … And two, let’s do to it in a way that we are still involved as an investor.’”
Power Corp. has made changes to its retirement and investment assets over the years. In 2014, it combined the retirement recordkeeping businesses of both Great-West and Putnam, keeping the companies distinct entities after the move for other lines of business. The combined retirement entity continued to operate solely under the Great-West Financial organization.
In 2019, Great-West Life & Annuity Insurance Co. sold almost all of its individual life insurance and annuity business to Protective Life Insurance Co., the primary subsidiary of Protective Life Corp.. The business included bank-owned and corporate-owned life insurance, single premium life insurance, individual annuities and closed block life insurance and annuities. At the time, a Great-West representative told PLANSPONSOR there were numerous reasons for the decision, but the firm’s focus was on the Empower retirement business and Great-West Investments.
The Power Group of Companies, based in Montreal, operates in the areas of insurance, retirement, asset management and wealth management. Together, its firms have $2.1 trillion in AUM.
