Lessons Learned From Earlier Recordkeeper Consolidation

Looking back over the first half of 2019, Patrick Murphy, CEO of John Hancock Retirement Plan Services, says it’s already been an interesting year for the retirement plan industry.

One of the big stories, he agrees, was the announcement and recent finalization of the acquisition of Wells Fargo’s Retirement and Trust business by Principal Financial Group. Through the acquisition, Principal effectively doubled the size of its U.S. retirement business, while bringing on institutional trust and custody offerings for the non-retirement market and expanding its discretionary asset management footprint.

Murphy says he was not surprised to see such a deal come down the pike, given the ongoing discussions of recordkeeper industry consolidation. As PLANSPONSOR data show, the trend of recordkeeper consolidation has been going on since at least 2009. In fact, out of the top 20 recordkeepers by assets analyzed in 2009 and again in 2017, only four had not pursued an acquisition-based growth strategy.

“There has naturally been a lot of industry talk and introspection coming out of the deal between Principal and Wells Fargo,” Murphy says. “So far, what is clear to me is that they are taking a calculated and careful approach to integrating the two companies, and I think that’s wise.”

Murphy speaks from experience on the topic, having gone through an ambitious integration process over the last few years resulting from the 2014 acquisition by John Hancock of New York Life’s retirement plan business. Coming from the New York Life side of the equation, he worked hand in hand with Peter Gordon, the previous CEO of John Hancock Retirement Plan Services (RPS), to join the two companies, each of which had a strong culture and way of doing business. Today, the combined entity ranks 16th largest in terms of assets, fourth in terms of the number of plans served and 15th by number of participants.

“Right from the beginning of our integration, Peter and I made a conscious effort to focus first and foremost on combining the cultures of the companies and really making sure that we honored the past of both legacy organizations,” Murphy recalls. “We committed to the elements that made each organization successful in its own right and wanted to make sure that when we combined the organizations, we had a solid culture and foundation on which to build. A successful integration is not just about the technology solutions and systems.”

According to Murphy, a big part of any successful corporate integration of this magnitude is to “check the egos at the door.”

“In our case, although each company was very good in its respective markets, there were things we could learn from each other, and there were elements that quite honestly had to go on both sides,” Murphy says. He adds that it was particularly important to move away from unnecessary manual processing of information and customer requests. He says this was an important factor in accomplishing a successful integration that started way back in 2014. Given how the industry has developed, it’s all the more important to consider in 2019.

“We decided early on that the new organization had to be fast, easy and convenient to work with. That meant being digital first or digital only in some use cases, and it meant building straight-through processing that could create a more efficient experience for both employees and customers,” Murphy says. “That effort took years to play out. It took years to integrate and modernize the combined entity, and then to optimize the processes and procedures to create that better customer experience took even more time.”

Murphy advises the leadership at Principal to avoid the temptation to make decisions based on the potential for short-term cost savings.

“We knew that if we took the sufficient time and we deployed the right technology, we could continue to grow the company without having to add or lose much staff,” Murphy says. “We knew it was important to keep the team members that came over from New York Life, and they allowed us to continue to grow thoughtfully over time.”

According to Murphy, it is also crucial for a successful integration not to underestimate the importance of communication throughout the entire process. He says this includes communication to the outside world, communication to clients and communication to employees.

“I don’t think people are averse to change in itself necessarily, which is why the communication element is so important,” Murphy says. “What people really fear is that a change will create something that is less than what they are used to. They’re afraid that a new way of doing business will mean they aren’t needed anymore. Really the opposite is true, and this needs to be clearly communicated. It’s not that we don’t need people from the legacy organizations, it’s that we need people focusing on the services that we know add the most value to our customers.”

Murphy adds that employees across all levels of the organization should be empowered to speak up about where the most and least value is being delivered to clients.

“We have benefited from encouraging our employees to feel entrepreneurial and to come up with their own ideas about how we may be able to change our processes to deliver greater value and to be more efficient,” Murphy concludes. “I think this approach has created a new excitement and commitment among the staff of the combined organization.”