It has been nearly three years since Principal Financial Group announced its intention to acquire multiple business lines from Wells Fargo, including the retirement plan business as well as the trust and custody business.
Through the acquisition, Principal effectively doubled the size of its U.S. retirement business by the amount of total recordkeeping assets, while bringing on institutional trust and custody offerings for the non-retirement market. In addition to increased overall scale, Principal gained a stronger foothold with mid-sized employers, as more than two-thirds of Wells Fargo’s institutional retirement assets were in plans ranging from $10 million to $1 billion.
In an interview with PLANSPONSOR, Sri Reddy, senior vice president, retirement and income solutions at Principal, said the integration of the retirement business was completed in August 2021. Just this week, the firm completed the integration of the trust and custody side of the business.
Reddy says the integration marks an important milestone for Principal, one that positions the firm, via its Principal Custody Solutions unit, to better serve institutional clients of all sizes, across both retirement and non-retirement custodial and trust solutions. With the integration completed, Principal Custody Solutions now serves nearly 3,000 institutional clients representing more than $1 trillion in assets. Clients include corporations, government institutions, insurance firms, other financial institutions, endowments, foundations and non-profits.
As Reddy highlights, Principal Custody Solutions offers clients a “full scope of financial services,” including custody account services, trust/fiduciary services, financial analytics, specialty reporting and benefit payment services. Additionally, the company has rolled out a new user interface accessible through a single web-based application, alongside a self-service platform for pension plan managers, investment managers and retirement plan distribution recipients.
“We have completed this integration and client transfer at just the right moment, with an increasing call from clients to provide trust and custody services to meet their often-complex financial needs,” Reddy says. “We’re pleased now to be able to offer these services with the high-touch, tailored solutions we give to all our clients at Principal.”
Discussing the integration process, Reddy says he and his colleagues took significant steps to limit client disruption, following a detailed and strategic communications plan that sought to ensure no clients faced surprises or serious disruptions.
“For example, one of the things our clients told us is that they would really like to keep the same account numbers and to keep the same access to their transaction histories,” Reddy says. “We told them we understood how important that was, and we made it a central part of the process. That strategy served us well. The other thing I can say about the process is that our clients have been patient, and they have been patient because we have been in constant communication with them.”
Reddy says the firm put in a substantial effort to create client readiness and confidence before any transitions happened. His leadership team even offered their personal cell phone numbers to the biggest marquee clients to ensure any questions they had were answered quickly and accurately.
“Now that we are finished with the integration, there is no question in my mind just how important those steps were,” Reddy recalls. “By creating this open lane of communication, we were able to generate, in real time, many useful insights about what was working well and where potential problems could emerge. In the end, the transition was seamless.”
Reddy says he and his colleagues are optimistic about the direction and momentum of both the retirement side of the business and the trust/custody side. He says the firm will pursue continued growth well beyond the defined contribution marketplace, with an emphasis on serving defined benefit pension plans and companies considering enacting pension risk transfers. He also foresees strong growth of non-qualified deferred compensation plan services.
“The nonqualified business is one to watch,” Reddy says. “In this tight labor market, companies are looking for new and creative ways to attract and retain key talent. One way they can do this is by helping executive leadership minimize taxes by smartly leveraging nonqualified deferred compensation arrangements.”
Asked if he has any words of wisdom for industry peers that are also engaged in mergers and acquisitions of this magnitude, Reddy says there is no substitute for hard work, collaboration and careful planning across all levels of an organization.
“It took months and months of meticulous planning to get it right,” he notes. “To give you a sense of the amount of work that went into the actual client transition, we stood up almost 140 different information technology applications over the past two years. We completed four separate migration dry runs over the past six months, as well. The final dry run gave us total confidence that the move itself would go smoothly. I’m extremely proud of the more than 350 project management staff who made this possible.”