In April, Principal Financial Group announced a definitive agreement with Wells Fargo & Company to acquire its Institutional Retirement & Trust business, with an expected closing in the third quarter. On the first day of the third quarter, Principal announced the deal is closed.
“We wasted no time. It went exactly as we had planned. We were able to get regulatory approval and complete all transition services agreements. It speaks well about the good collaboration between Principal and the Wells Fargo Institutional Retirement & Trust team,” Renee Schaaf, president – Retirement and Income Solutions at Principal Financial Group in Des Moines, Iowa, told PLANSPONSOR.
Through this acquisition, Principal will double 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. Schaaf said Principal is excited about the trust and custody business. “It rounds out something on which we have not focused—serving non-retirement trust and custody assets,” she said.
According to Schaaf, one of the guiding principles in the integration of the two firms is being sure it brings forward best of both business models and service models. “It is very important to us to identify what features client most appreciate and bring value to marketplace,” she said. Schaff mentioned there is opportunity to add depth in what the two businesses have to offer together—both Wells and Principal have a total retirement outsourcing focus. Both organizations bring strength in the defined contribution (DC), defined benefit (DB), nonqualified plan, employees stock ownership plan (ESOP) and institutional asset advisory businesses.
As an example of adding depth, she said, Wells Fargo brings strength in area of DB plan fiduciary services. Principal has strength in this as well, but Wells Fargo has specific capabilities in the large plan market. Wells Fargo also has robust plan sponsor reporting capabilities. This will be combined with Principal’s recordkeeping and administration capabilities, in addition to its ability to offer bond designs to assist with asset-liability management. Principal also offers DB plan sponsors a guarantee that if they are interested in transferring risk in the future, it will quote and bid on that business.
Schaaf said Principal is not only acquiring additional capabilities and scale, but an experienced and highly professional team. “We are very keen on retaining talent,” she said.
Principal has already announced additions to leadership teams from Wells Fargo, with Joe Ready, current head of Wells Fargo Institutional Retirement & Trust, taking a new role as head of Trust and chief fiduciary officer for Wells Fargo Wealth & Investment Management.
According to Schaaf, plan sponsors clients have responded very positively to the acquisition, as Principal has ensured them that the integration will be seamless. Principal is making sure to minimize disruptions and on day one, there are no changes to what the client sees.
Wells Fargo has two different recordkeeping systems that are different from Principal’s, as well as a different system for trust and custody services. Schaff noted that both companies have proprietary systems. “As we think about the systems, it requires a very thoughtful approach for each line of business,” Shaaf said. “We are still doing a detailed analysis about whether to combine systems. We know we need to keep the strongest capabilities from each.”
As for the future, “We’ve been having early conversations with Wells Fargo Institutional Retirement & Trust business clients, and there is a real interest on their behalf to access and leverage the strong financial wellness capabilities we have as well as capabilities for the entire participant experience,” Schaaf said. Principal has broad electronic capabilities on the table to onboard participants in an intuitive, simple and fun experience. “When we’ve compared ours to other methods of enrollment, we see a 20% increase in the overall amount of deferrals.” In addition, Principal has developed a digital website for Hispanic employees that is not only translated but culturally transcribed to engage Spanish speakers in ways that are culturally relevant to them. “We are anxious to roll that out,” Schaaf said.
She added that Principal is well positioned to take advantage of and bring solutions into the marketplace as DC plan participants turn assets into an income stream for retirement.
Schaaf said there is a long integration period, 18 months, which allows Principal time to be very thoughtful about how to combine all the capabilities and offerings the two firms have, as well as to make sure client service teams and functionality are kept intact.“The biggest challenge is getting our story out and working hand-in-hand with every consultant, adviser and plan sponsor to make sure we address everyone’s needs in the best possible way, but it is a challenge we are very prepared for and that we welcome,” Schaaf said. “We are so pleased with the cultural similarities between Principal and Wells Fargo and know there is so much we can do.”
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