Principal plans ‘thoughtful’ integration of Wells Fargo retirement plans
Plan sponsors will have the choice of leaving investment menus alone.
The Principal Financial Group will take the next 18 months to fully onboard the 401(k) retirement plans it’s acquired with the purchase of Wells Fargo & Co.’s Institutional Retirement and Trust business, which closed Tuesday for $1.2 billion.
Renee Schaaf, president of Retirement & Income Solutions at Principal, said the acquisition resulted only after exhaustive due diligence, and that the integration process too will be methodical.
“We’ve done our homework, and we are very comfortable with the businesses we are acquiring,” Schaaf told BenefitsPRO.
Principal’s purchase includes Wells Fargo’s defined contribution, defined benefit, executive deferred compensation and employee stock ownership plans, its institutional trust and custody business, and its institutional asset advisory businesses.
It has been a bruising several years for the Wells Fargo brand. Class-action lawsuits began emerging in 2016 over claims bankers were opening unauthorized bank and credit card accounts after the Consumer Financial Protection Bureau found thousands of unauthorized accounts were generating millions in fees for the bank.
Then, in 2018, Wells disclosed in its 10-K filing with the Securities and Exchange Commission that the Departments of Justice and Labor, and the SEC, were investigating the bank’s Wealth and Investment Management division for “inappropriate referrals and recommendations” on 401(k) rollover recommendations.
The Wealth and Investment Management division, and other retail advisory units, were not acquired by Principal.
Schaaf says the issues that have dogged Wells Fargo’s management do not extend to its Institutional Retirement and Trust business.
“On top of our very deep due diligence, I spoke to a number of Wells IRT customers, and I have not detected any issues that would be reputationally damaging,” said Schaaf, who was promoted to president of the Retirement & Income Solutions unit effective March 1 and who has spent her entire four-decade career at Des Moines-based Principal.
“We are very comfortable with the IRT business itself, the people that support it, and the way it was run,” she added.
No change in the interim for Wells 401(k) plans
According to PlanSponsor’s 2017 recordkeeping survey, Des Moines-based Principal administered about 52,600 401(k) plans in 2016. Nearly 90 percent of those plans, or about 47,200, had less than $5 million in assets.
Wells’ IRT unit was recordkeeper to more than 3,400 plans with nearly $228 billion in assets.
Nothing will change for the roughly 3.4 million 401(k) participants in Wells Fargo plans during the 18-month integration period, said Schaaf.
“We are planning a seamless transfer and will transition clients on a very planned basis,” she said. “Wells Fargo plans will continue to be serviced by Wells Fargo staff. This is the way we structured the deal to give us the necessary time to complete the transition. It’s not just flipping a switch—that risks creating a lot of disruptions.”
With the deal now closed, Principal is able to fully tap the data, technology, processes and platforms they now outright own.
But prior to the closing, Principal did secure several key upper managers from Wells. Joe Ready, who was president of Wells Fargo IRT, will stay with Wells and support Principal in the client integration process.
Principal will also be acquiring 2,500 Wells employees and five service centers.
“Most of the people coming to us are either client facing, or they directly support client facing functions,” explained Schaaf. “We knew we needed the Wells team to keep the service teams the same to assure a seamless process for our customers.”
No proprietary push
The acquisition makes Principal the third largest defined contribution recordkeeper, and significantly increases its presence in the large plan market.
In 2016, Wells’ IRT unit was recordkeeper to 248 plans with $100 million to $500 million in assets, and another 54 plans with more than $500 million in 2016, according to PlanSponsor.
Principal had 192 plans with $100 million to $500 million, and 34 with more than $500 million.
But the acquisition is more than just a play for a deeper position in the large plan market, says Schaaf.
“It would be selling the strategy short to simply characterize the deal as wanting access to the large plan market,” she said. “The acquisition certainly strengthens our footprint in the mid and large plan market. But it’s about much more than that. It’s about access to new capabilities, scale, and the talent pool to serve those customers.”
While the specifics of the integration strategy will emerge as the process unfolds, Schaaf is certain about one component of how today’s Wells plans will look when they are rebranded in 18 months.
“We will continue to embrace open architecture,” she said. “Investment menus will be designed by the client’s choice. Sponsors will not be pressured into a lineup that includes Principal proprietary products. They’ll have the choice of keeping their existing investment lineup exactly the same.”
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