Bloomberg News

Reynolds Aims to Oust Fidelity in Push to Gain 401(k)s

May 27, 2014

Robert Reynolds

Great-West Lifeco U.S. Inc. President and Chief Executive Officer Robert Reynolds stands for a photograph at Putnam Investments in Boston on Jan. 30, 2014. Source: Putnam Investments

Robert Reynolds, who built the industry’s biggest 401(k) business while at Fidelity Investments, is seeking a reprise.

The 62-year-old chief executive officer of Great-West Lifeco U.S. Inc. catapulted his firm to the No. 2 spot among 401(k) providers with last month’s acquisition of JPMorgan Chase & Co. (JPM:US)’s recordkeeping business. Reynolds said his goal is to go after the top spot, occupied by his former employer Fidelity, where he was once chief operating officer.

“I’m very hungry to be the best,” Reynolds, a West Virginia native who goes by Bob, said in an interview last month. “I know the business so well.”

By expanding the retirement business, Reynolds is adding stable and recurring revenues and the possibility to sell more products to savers, a rationale that helped Fidelity diversify as clients scaled back purchases of traditional active mutual funds. His ambitious plan puts Reynolds in direct competition with Boston-based Fidelity, which he left in 2007 after being passed up for the top job at the family-owned retail-investing giant.

“If you are cast out of Eden you cannot ever be dispassionate about the choices you make,” said Don Putnam, chairman of PL Advisors, which advises money managers on mergers and acquisitions. “He sees the strategy through the lens of his own experience, which was brilliant and searing.”

Reynold’s Ascent

Reynolds graduated from West Virginia University College of Business and Economics in 1974 with a bachelor’s degree in business administration. Reynolds, whose career at Fidelity spanned more than two decades, was once considered a potential successor to Fidelity Chairman Edward C. “Ned” Johnson III, who in 2012 named his daughter Abigail Johnson as president, making it clear she would be his successor. Since his departure, he has been running Putnam Investments LLC, another Boston-based asset manager, for the past six years.

In March of this year, he was named head of the U.S. subsidiary of Canadian insurer Great-West (GWO) Lifeco Inc., which owns Putnam. The U.S. businesses sell insurance and investment products as well as recordkeeping for employer plans. As Reynolds took the helm, the company merged the retirement businesses of its Putnam and Great-West Financial units underneath him.

“I had the top job at Fidelity, but not the top job,” Reynolds said in a 2008 interview. “And when I asked my parents, they wouldn’t let me change my name to Johnson.”

Firms including Putnam and Fidelity sell employers recordkeeping services including sending out statements and providing online tools for workers. They also have money-management units that sell investments such as mutual funds to the plans.

Industry Behemoth

Fidelity, which controlled $1.37 trillion in retirement assets as of March 31, is the behemoth in the industry with about a quarter of the market share by assets it maintains records for, or triple its closest competitor. Meanwhile, Putnam wasn’t among the top 20 administrators as of 2012, according to research firm Cerulli Associates, and Great-West was the seventh-largest recordkeeper of defined-contribution plans by assets in 2012.

Americans held $5.9 trillion in defined-contribution retirement plans as of Dec. 31, of which $4.2 trillion was in 401(k)s, according to the Investment Company Institute.

To be a contender in the market, Reynolds said he knew he needed more scale. So he devised a plan about a year ago to merge Putnam’s retirement-plan business with its sister-unit at Great-West Financial, which generally administered accounts for small and mid-sized employers with 401(k)s and public entities or nonprofits with the similar 403(b)s and 457s.

As he was putting the two businesses together, Reynolds caught a break. JPMorgan approached Great-West with the desire to sell its recordkeeping business, which serviced large employers with 401(k)s such as Cisco Systems Inc. (CSCO:US) and Walgreen Co., Reynolds said.

‘Scale Game’

That was the jump start he was looking for. After the acquisition, the company will administer 401(k)-type accounts with a combined $387 billion in assets.

“Now all at once you have total market coverage,” from small to large plans in all parts of the defined-contribution business, he said. “It’s a scale game.”

Fidelity isn’t threatened by the consolidation of recordkeeping businesses under one of its own 401(k) architects, said Steve Patterson, head of sales for Fidelity’s defined-contribution business.

“They have a lot of work in front of them,” Patterson said. “Putnam and Great-West, they have to take care of those two distinct cultures and bring in a third group. That’s a lot of work and that’s good for us.”

‘Difficult’ Business

Breadth is increasingly important for recordkeepers as fee-disclosure regulations and lawsuits have caused employers to scrutinize costs and negotiate to lower them, said David Halseth, principal at the Denver-based Strategies LLC, whose firm advises employers with a combined $2.2 billion in 401(k) assets. Providers need a wide base of participants to spread out the costs of technology improvements and services. They also usually need to sell other products such as mutual funds or insurance to make the economics work, said Halseth.

“It’s very, very difficult to make money,” he said. “Margins are razor thin.”

Reynolds, who in 2006 was among a handful of finalists to become commissioner of the National Football League before the NFL selected Roger Goodell, has a history of tackling difficult situations.

Putnam Turnaround

He took over Putnam when it was hemorrhaging assets, with $44 billion in mutual-fund withdrawals from 2006 through 2008, according to data compiled by Chicago-based researcher Morningstar Inc. (MORN:US), which excludes money funds, funds of funds and exchange-traded products. He stopped the bleeding and last year the company’s flows turned positive, with its mutual funds attracting $3.8 billion. Putnam manages about $70 billion in mutual-fund assets compared with Fidelity’s $1.2 trillion as of April 30, Morningstar data show.

Reynolds has insurance capabilities through Great-West to create products that offer guaranteed income at a time when concerns about retirees outliving their savings are mounting.

“We’re in the second inning of that game,” Reynolds said of solutions to help workers spend their retirement-account balances. “There’s a huge opportunity for us.”

Reynolds has called for more lifetime income products as options in 401(k)-type plans that would blend mutual funds with annuities, which are insurance contracts that can provide guaranteed monthly payments for life in exchange for upfront payments. The company is working on such a product with an annuity built in that could be available as soon as this year, he said.

‘Mouse Trap’

Once the retirement businesses are combined, Reynolds said his priority is to target the full range of employers -- from large to small -- and to sell workers investments managed by Putnam as well as insurance products from Great-West.

“We’re building a better mouse trap,” he said.

Great-West’s acquisition of JPMorgan’s retirement business is scheduled to close in the third quarter of this year. When it does, it will be ahead of competitors such as Vanguard Group Inc. and Prudential Financial Inc. as the second-largest recordkeeper by participants, serving about 6.8 million workers. Fidelity dwarfs all of them, administering accounts for more than 17 million workers.

Reynolds helped give Fidelity its long lead. On his watch, Fidelity Institutional Retirement Services Co. swelled to about $300 billion in assets by 2000, from $3 billion when Reynolds took it over in 1989. In his last seven years at Fidelity as COO, Reynolds continued to focus on the 401(k) profit engine, lobbying for federal legislation passed in 2006 letting employers automatically enroll workers into the accounts and default them into target-date (FFFDX:US) mutual funds sold by money managers including Fidelity and Putnam.

Reynolds said his efforts to expand in the 401(k) market aren’t about beating his former employer. It’s about being No. 1.

“I’m a competitive person,” he said.

To contact the reporters on this story: Margaret Collins in New York at mcollins45@bloomberg.net; Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Sree Vidya Bhaktavatsalam, Josh Friedman


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  • JPM
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  • CSCO
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