Bringing Together Assets, People, and Processes with Edmund Murphy

Jack Sharry: Everyone, thanks for joining us on this week’s edition of well, tech on deck, our podcast has been on the air for about a year and a half. Now, as our listeners know, I have the privilege of speaking with industry leaders each week about issues that move our industry forward around the confluence of digital and human advice. Ed Murphy is our guest this week, and is the president and CEO of Empower. He was on our very first episode way back when and he has the distinction of being our most popular podcast guest so far, by far. So excited to have that back to provide an update on the good work and his team. We’ve been doing it in power and Personal Capital at some of the other properties. And so, Ed, welcome back to WealthTech on Deck.

Ed Murphy: Thank you, Jack, I hope I don’t disappoint today.

Jack Sharry: My expectations, you created a high bar. But, I have a hunch you’re gonna come through. So like you said, when we first spoke about almost two years ago, on this podcast, you would complete a series of deals, probably the most prominent of which at that particular time was the deal with Personal Capital, you’ve acquired a number of defined contribution players and kind of put those altogether. So let’s start with you bringing us in our audience up to date on where you were, then that’s once it was January, February of 2020. Just before COVID hit. Yeah. And then what has transpired since

Ed Murphy: Yeah, so Jack, we acquired Personal Capital back in August of 20. You know, that was a really important acquisition for us, in the sense that we were acquiring what we felt was continue to feel the best digital hybrid wealth management platform in the industry. And so we spent the last couple of years focused on growing that business, but also leveraging a lot of their capabilities and their technology and embedding that into our business and both into our defined contribution business. And then re-platforming, our direct to consumer business, which has been primarily handling customer rollover activity, as they have a change in their life, whether it’s a job change, or retirement. And then we follow that shortly thereafter, with the acquisition of MassMutual. I think that was April of 2021. And then following that we bought the Prudential business. So in that period of, you know, call it roughly two years, we invested about $8 billion of capital into the empower business. Obviously, we believe very strongly that there are tremendous growth opportunities in the US both in the defined contribution space and serving end users, whether in plan or on a plan and helping them achieve their investment goals and objectives. And our board and our investors obviously, believe in the mission as well. So it’s been a great journey in the last couple of years, lot of uncertainty, macro uncertainty in the marketplace, but it hasn’t stopped us from continuing to invest in business.

Jack Sharry: So for our audience that may not follow this, as closely had been a student of what Ed and team have been up to, I think it’s just a fascinating and really super smart strategy. They’ve bought a bunch of brand names like Prudential MassMutual, many others, Putnam, the old Bear Stearns, whatever it was called after the Fifth Third Bank, all these different defined contribution, buckets of assets, combined it together, they’re now the second largest terms of defined contribution if I have that correct, behind fidelity, so they have all these assets. And then they made the Personal Capital acquisition, talk about that strategy, because I thought it was brilliant at the time. Sounds like it’s played out further, but maybe talk about some things you had to do to bring it together, because acquisitions sound great, man, great headlines, but they’re hard to do having some of that my past. So talk about that a little bit how you brought it together.

Ed Murphy: You know, when you think about the acquisitions that we’ve done, there’s the scale acquisitions that really allow us to kind of leverage the investments that we made in our infrastructure. And I would say we’re very good at that. We’ve got a really solid team. And I mean, if you look at the team, for instance, that worked on the JP Morgan, transaction back in 2015, when we bought the JP Morgan business, it’s that same team that’s been executing on MassMutual and Prudential and we released our results a few weeks ago on MassMutual. And it was by all accounts very successful exceeded all of our expectations, we retained 87% of the revenue 92% of the participants and 90% of the plans. And as you know, those customers that were 26,000 of them, they have an effective fiduciary obligation to check the market to go out to bid just because in power acquire the business doesn’t obligate them to come to us. We have to earn your business and so it’s a real testament to the Empower team and what we were able to do there. So you’re exactly right Jack acquisitions are really hard, most m&a fails to deliver on the stated objectives. And oftentimes it’s less around the financial targets not being met, or maybe even the operational targets. Usually, it’s a cultural issue that prevents the acquisition from being successful in delivering on those results. So we brought in 1850 employees from MassMutual, we brought in close to 1900 employees from Prudential. And as such, with these acquisitions, we’ve actually grown in power has grown from about 6300 employees in January of 22, over 12,000 employees. Wow, wow. So we’ve seen dramatic growth. And that comes with challenges, obviously, is trying to get people into your culture, I would say with Personal Capital that was less around the scale acquisition, it was more around buying what we thought was a differentiated offering in the marketplace, unique capabilities and talent and expertise that really understood the direct to consumer market in a way that, frankly, empower didn’t, we just didn’t have that embedded expertise in the organization that so a lot of the key leaders that built the Personal Capital business remain with us. They’re taking on broader roles and the power organization. And a lot of those insights and learnings are getting shared throughout the Empower organization. So and then I think what we’ve seen, just like others have seen as is, I would say, our model has evolved. It’s more of to some degree, our strategy and that we want to be a best in class record keeper administrator. But I think in many ways for our customers and prospects, that’s table stakes. It’s really about what are we going to do to deliver successful outcomes for the sponsor for the intermediary, who we rely very heavily on, and then the end user. And this insatiable appetite for advice is unabated. And we continue to see it. And I think what I would say Jack is, if you put the acquisitions aside for a moment, and you look at Empowers growth organically, because it’s largely a take away market, there’s not a lot of new growth coming into the defined contribution space, we’re growing at two and a half times the rate of the market. So every time we acquire a business, I actually see a stepped up growth, acceleration and our organic success. And what is that value proposition? Candidly, we talk about a holistic approach to supporting the participants. We’re very transparent about that. And I think that’s what sponsors are looking for increasingly, they tend to be paternalistic. They want to focus on delivering outcomes for the participants, they know that a disproportionate amount of the time their employee time is being spent on personal financial matters. And some of the some of that is coming at the expense of being a productive employee at work. So what can empower do in conjunction with partners that we work with, but what can we do collectively, to deliver on that broader mission? And to me, that transcends record keeping administration totally, totally, it’s this holistic approach to how we’re going to serve the customer.

Jack Sharry: I know you’re gonna agree with this, let me lay out the case that at least as I look at the industry and watch trends, and all that sort of stuff, and frankly, you’re probably the best example I can, that probably you are the best example I can think of. So there’s this convergence of what’s going on in the industry to wealth management, between workplace annuities, and insurance and investment management, it’s all kind of coming together. And that really the place future wealth management clients start is that high contribution, workplace engagement. And that’s what you’ve done. You brought a lot of assets together people processes, all this sort of stuff. I’m sure that it wasn’t easy. They make it all work together and all the rest of it, but sounds like you. If you’re enjoying organic growth, you’ve made it work. So you’ve done the ticking and tying to make it work. Talk a little bit about what you’re doing. And I think Personal Capital, I would assume plays an important role here. How are you winning, creating that organic growth? How are you engaging with both advisors and participants? Were they’re becoming they’re really looking, I’m assuming again. But I think I’m not an accurate to say, you’re pulling us all together to give a better experience a better outcome, a better and the opportunity, frankly, to collect assets, because you’ve done a good job. You’ve earned it. So talk about that, if you would.

Ed Murphy: Well, you know, here’s the way I think about it. We’ve got 17 million Americans on our platform. And we’ll probably close out 2023 with close to 80 and a half million and that’s without any future acquisitions, right, which we can talk about that because I still think there’s gonna be more consolidation and more m&a in the market. We have 1.4 trillion on our platform. We can’t go it alone. The demand and the expectation is too great. Even with our scale on all of our capabilities, there’s no way that we can singularly meet all the needs of those 17 million customers. And so as you know, Jack, our model is we work through and with intermediaries. So on winning these plans, sponsor mandates, we do not sell direct, we don’t have our own direct distribution. We work through consultants and advisors. And many of those advisors and consultants have a wealth management capability. And they’re very good at it. Some of the challenges they face are the same ones that I face, they can’t scale either. So how do we come together in a way that’s mutually beneficial, that meets the needs of the customer. And those are the conversations that we’re having with our partners. And I would just say that if you look across the Empower complex in the enterprise, and the way we operate as a company, it’s very much built on a partnership model. I mean, I’ve been very candid in saying, you know, we don’t need to administer everything, and we don’t need to manufacture everything. In fact, we don’t manufacture much at all, we work with partners, and whether they’re asset managers, whether retirement income providers, insurance companies, for example, we are an insurance company. But as we look at thinking about insurance-based products for the consumer, I’m not sure we want to take that balance sheet risk, I’m not sure that’s where we want to place our focus. So why not work with a world class partner, and bring something unique and differentiated to market? Maybe it’s co-branded? Maybe it’s not, but that’s the way we think about it. We start with the customer and work our way back in. And I think that covers the gamut, Jack, I mean, that includes the world that’s evolving around alternatives right now, and the role that alternatives can and I think we’ll play in the defined contribution space, and even in the retail space, we would do that through a partner, you know, working alongside?

Jack Sharry: Yeah, that’s fascinating. So as I look at the marketplace, what it looks to me stay this fairly closely at a strategic level, is that as you can engage with that, that participant early on, or whatever point you engage with them, and you provide services and guidance within through partners. So it’s not you’re not going alone, you’re partnering very effectively, obviously successfully. But as you partner and provide services, and I’m sure your extended love to hear more, if you if you’d like to share, you’re expanding the services available so that your partners succeed and gather more participants and gather more assets and all the rest of it. My observation is that that experience, forget about outcome. That’s a separate topic. And I know you’re working on that person to capitalism, great work in that regard, as well. But as you are engaging with those, those participants and educating them and getting them comfortable and providing answers as they go along, I’m sure you’re enhancing that. And I don’t mean that in any kind of pejorative way, but you own the relationship, or at least are enabling the ownership live relationship for your advisor partners. So anyway, talk about that, if you would, that seems to be what you’re doing.

Ed Murphy: Yeah, when I talked about the strategy and how we think about things, there is this partnering element to it that I think is critical, we’re not going to be successful unless we work with best in class providers. The one thing though, that we won’t outsource, where I think we have real expertise in that’s the user experience. And so whether that’s delivered digitally, whether it’s through an app or the web, or whether it’s in person, we feel really strongly around our value system, the culture that we built here, that we can deliver a very unique and differentiated experience. The marketplace has voted on this. We’ve seen it with the success that we’ve had, when we do exit surveys and, you know, post win analysis, what we find is that the user experience that we built is viewed to be simple, elegant, intuitive, outcome oriented, all the things that I think customers are looking for. But you touched on something that I think is very relevant, in fact, very timely in the sense that we just did. We just published some findings on our platform 4.3 million participants. And not surprisingly, what you find is they’re actually pretty resilient in the sense that we’ve seen just a very de minimis change in their savings rate. Despite this, this downturn, we’re experiencing point 2%. And we have seen an uptick, I will say in hardships, and withdrawals and loans, but for the most part, the consumer has stayed the course despite the rough waters and the headwinds we faced with the equity markets. But the other thing what we found Jack, which would you alluded to is the engaged participants, based on the way we define it is saving at a much higher rate and is on a path to replace income and retirement at a much higher percentage than those that aren’t engaged. So our challenge and opportunity is to find ways to reach out to people on their terms. with relevant messaging, personalized communication, that allows them to engage, and we can’t do that simply over the phone, right, we can’t make 17 million phone calls. So it has to be a multi prong multi-dimensional approach. And that’s what we’re really focused on. One of the things that intrigued us when we did our due diligence on Personal Capital is that their customers were engaging, roughly 17 times a month. Imagine that 17 times a month, either with their advisor, or through the web or through the app, we have defined contribution participants that don’t contact us, and don’t engage us once a year. So imagine as an industry, if we could drive real transformational change around engagement, what the results could be, wow.

Jack Sharry: Why do you think that is? I’m fascinated, that’s a fascinating statistic. Why do you think that is, its enormous compared to anything else I’ve heard about client engagement or participant engagement?

Ed Murphy: It is. And I think this is one of the reasons why, you know, we acquired Personal Capital, that we took a lot of their capabilities and deploy it into a defined contribution experience. So we could ideally, derive the same level of engagement. It’s still early yet, but we’ve seen a meaningful uptick. I think part of the reason is there tends to be kind of a set it and forget it mentality among a lot of Americans where they do roll the plan. And, you know, they may have auto features that are activated, or they may not. But I think as an industry, we’ve struggled with, trying to get relevant, germane information to them that’s useful in a way that’s consumable, that would, you know, lead to them saying, I want to learn more, I want to understand more. So you almost have that sort of turned on its head. Good, right. And, you know, one of the things that I’ve thought about with my team, and I challenged them all the time is to say, there’s great direct to consumer companies that have produced incredible results in terms of engagement, customer loyalty, and they’re not in our industry. Many of those practices, and those techniques have application. And so some of that is sort of thinking outside the box, and not being constrained in your thinking around. This is the way we’ve always done it in the financial services space. Look at what Amazon Prime has done. And then look at what Uber has done. I mean, you could go down the list in terms of, you know, consumer-oriented companies that have been very effective at driving high levels of engagement and customer loyalty. And without that, you’re just not going to get the behavior change. I guess it’s my point.

Jack Sharry: Yeah. It’s fascinating to think about this quite a bit lately and writing about it just trying to get my head around, because we see this clear trend toward what we call comprehensive wealth management platforms or comprehensive advice platforms. And you have that that’s what you have. And of course, you’ve heard me talk in our guests of our audiences should be talked about at nauseum about our relationship with Morgan Stanley, it’s doing the same thing. They’re coming from a wealth management perspective, moving in your direction, you’re coming from a workplace perspective and moving in their direction. Each strategy are similar, but also quite different. But one of the things that has occurred to me that we’re in the midst of some kind of passage, inflection point, a tipping point called what you will, the wealth management business, and you and I grew up in that side of things, was pretty much a product of the month, whatever the product was, it was a mutual fund. It was later ETF later, SMA whatever the list of products, direct indexing the latest rage, ESG, it’s always a product, that’s the solution. And that’s been the orientation of wealth management for a long time, and continues to be although I’m predicting we’re in the middle of a shift, I think. Whereas Personal Capital, start with planning, started with trying to understand the client’s needs very much the consumer-oriented approach, as opposed to the product-oriented approach. I’d love to hear your comments. That’s my sense of what’s underway here. But I’d love to hear your thoughts on that.

Ed Murphy: Look, for the most part, I think products are it’s a commodity, it’s a commodity, you can get financial service products anywhere. To me, it’s more around, bringing together that experience in a way that’s, that’s holistic in a way that the end user can understand and can engage. And it’s the entire personal balance sheet. It’s not just the asset side of the ledger, but it’s also the liability side of the ledger. And how you take all these disparate pieces and weave them together in a way that’s elegant and seamless. And I think that’s the silver bullet. And very few companies do it. Well today.

Jack Sharry: I can only point to one or two that I can hit or close. Right.

Ed Murphy: That’s how I think you get your way engender loyalty and you get people to engage and ultimately get individuals to take action and increase savings rates and diversify their holdings and all of that. And increasingly, like, if you look at the survey data, it’s exactly what customers want. Yes, I can show you the data. They absolutely want a holistic approach, even the defined contribution participant. Sure. I mean, how can we, as a provider, give thoughtful, useful information and advice, if all we see is one slice of one’s total holds? True, and there’s no denying that there’s the need for advice, you know, I just recently was on a JetBlue flight, and they’re a customer of ours. And I was, I always like to talk to the pilots and the flight attendants. And I was talking to a flight attendant. And she said, you know, I love the plan, that’s easy, but I have no idea what I’m doing. Right? Like, I don’t know if what I’m doing is the right thing, or not, right. And, you know, the way we’re organized is, our participants, services reps are not in the business of giving advice. But we do have a separate group within the company where we can provide advice. So it’s important for us to get someone like that over to the right individual, who can look at the options that are in the plan, and reassure people or, or make suggestions based on their situation. So I think that is a typical response that you would get from the defined contribution participant, particularly one that’s not in a managed account type structure, right? That’s just investing in a diverse set of mutual funds. So I think that’s the opportunity and the obligation, frankly, that we have as an industry.

Jack Sharry: So again, my audiences has heard me say this, but this is a perfect example of my daily conversation. So I have privilege, frankly, of talking to people like Ed, many others daily about these issues, these this topic, and I’m not an education campaign, where are your words gonna be using lately? It’s one thing to have multiple accounts and products and whatever else you have, and most people frankly, most investors really don’t know what they’re doing and really do need one and need. The guidance. The challenges is how do you weave it together, because the, the assets are spread all over the place, different tax treatment, different risk profiles, there’s all sorts of different stuff. And particularly in this really came, I’d love to hear your comments on this, particularly with COVID, as many people said, Well, I got a fat 401k. And I can retire early and sick of this thing. And you know, life is short, and all the various things we read, of course, now they’re all shifting back to work because of inflation. So the roller coaster ride of being an investor. But in any event, as I’m here, and I’m here at my daily conversations, literally, with people, just regular consumers, that they just want someone to help figure it out how to put it together, you know, they don’t want to know about the latest greatest product necessarily find the people like to get off on that stuff, I suppose. But how do you put together? And how do you make sure you have more money, after taxes? And after inflation? And after all the other things they have to consider. But what was that experience? Like? I would assume in your organization, you had a lot of inbound, whether it was a Personal Capital or power or both around so what do I do? How do I put this together? Both as we’re beginning COVID. And then as we’re moving away from it, hopefully? What do I do about this? I imagine you guys get clobbered with just calls and what do I do?

Ed Murphy: Yeah, definitely, definitely saw significant spikes in call volume and that sort of thing. But primarily people looking for reassurance, perhaps not feeling as confident and wanting to talk to someone to lay any concerns that they might have, it didn’t result in major portfolio changes. We didn’t see this capitulation or this move to cash, so to speak. Right. So in terms of asset allocation, I think participants in 401, K plans, savers in general, I think have learned over the years, that markets rise markets fall, if in fact it is long term money, it’s important to stay the course dollar cost averaging into it. So I will say the industry in conjunction with the media has done a good job, I think in reinforcing that message, because we didn’t see that. And I suspect our competitors didn’t see real dramatic changes there. What we’ve tried to do Jack and I go back to the opportunity that we have to leverage the aggregation engine that we have right now people need to opt into it and they need to see the value in it. But to the extent that they want to be able to see things all in one place, and want that experience to be what I call sort of optimized aggregation, right, not just as a static view, but you can look at things in its entirety and make some judgments and insights around fee optimization, or, you know, asset allocation or, you know, real specific reveals that come out of this I can be useful to the customer. And so, you know, we’re just in the midst of, you know, unveiling this. But we’ve got, I think close to 13 million participants now that are using our new, improved defined contribution experience. And increasingly, we’re seeing a large percentage of those customers opt in and aggregate. So now, the next time they pick up that phone, and they’re looking for help, or they say, I don’t have a plan, I need a plan. The person on the other end actually would have a view, a much broader view into the investment experience that our customers have.

Jack Sharry: So when you say, just to be clear for our audience, so you’re talking about an aggregated view, including assets, not necessarily held it held away assets, Siri, getting the full view, and they’re providing guidance on that full view is everything.

Ed Murphy: To the extent that there is a request or need for that, yes, we can. We can act as a fiduciary, if you will, in that situation.

Jack Sharry: And again, my observation, we talked about this every day with the folks we work with across the industry, that is the future is the aggregated view. That’s what the client wants. They wanted to buy the next great thing they want to, but they want to know, how do I maximize the growth of my assets so I can have more income? And how do I maximize the income on the other side of the mountain? So it sounds like you’ve been busy getting that? I think last time we spoke you were talking about putting all that together? It sounds like that’s well underway?

Ed Murphy: Yeah, I’d say it’s 90% complete. The clients at this point that don’t have it are the potential clients that are will be transitioning to our platform starting in the first quarter of next year.

Jack Sharry: We’re talking before we got on the podcast recently attended the Tiburon conference had many of these conversations. What you just heard in case you were wondering is you just heard the future of financial advice is that aggregated view, and is that more holistic view, in our estimation, I’m sure you would agree it’s a matter of cost risk tax and Social Security, if you can get that kind of free money. If you manage those, well, if you take full advantage of tax alpha, if you incorporate appropriate risk model, you consider when to optimize your Social Security benefits. It’s really costing the whole industry is working on that. You have better outcome, you have more money, as you’re accumulating, you have more money for income, I’m assuming that’s the heart of your strategy.

Jack Sharry: So, well, this has been great. As always, I had high expectations, once again, you’ve exceeded them. So before we wrap up, I wanted to see if you have a few takeaways you’d like to share with the audience things that if you were a listener, you’d want to know from where you sit.

Ed Murphy: I think I remain really encouraged and to use the old Merrill terms since I spent seven years of my career at Merrill Edge bullish if you will. On our industry in general and defined contribution business in particular, I think we can continue to work in a spirit of cooperation with policyholders and regulators to take the business to a whole new level and expand access. I also think over the next 20 years, with the transformation of wealth occurring this country, I think the wealth management business or be one of the find it’s going to be one of the greatest industries in America. So pretty sanguine about that. I think the other couple things I would say is, despite the headlines, I think investors are pretty resilient. We’ve seen that in this and some of the market downturns, we’re certainly seeing it now. Secondly, I would say the, the appetite for advice is unabated. It’s insatiable, it can’t be understated. And I think as providers of products and services, you’ve got to be able to do that and do it well, where you’re not going to be in business. And then the third thing I would say is you’re gonna hear a lot more from in power over the next 90 to 120 days, more than will share with you.

Jack Sharry: Terrific, I can’t wait to hear a real fan and students look forward to that and exciting. So, as always a great pleasure to catch up and get your perspective. It all congratulations on the great success you’re enjoying, I’m sure much more is to come. And at this point in our podcasts, my favorite thing to do is to ask people what they do outside of work. That is something that I’m particularly passionate about or excited about last time around. I think you were in high school or college you wanted to be governor of Florida, want to get into politics. But I’m curious what do you do outside work?

Ed Murphy: Well, let me say I’m the governor of Florida. I think Ron DeSantis has that locked up pretty well.

Jack Sharry: That’s, yeah, I think that’s pretty well you know what.

Ed Murphy: Jack I’ve got four adult children. Now my youngest just graduated college I went to in New York City to in Boston been married one engaged. So I would say our life revolves quite a bit around them. Yes, you know, we all have busy lives. But putting family first is really important to me. I don’t always succeed, but I worked hard at it every day.

Jack Sharry: Well, I didn’t know that we shared that I have four sons in their 30s. Now, all but one with either a wife or a long-term partner and so it can completely relate and Have a few are fortunate enough as yet to have grandchildren. But that’s the best yet. Almost eight and a five-year-old boy and a girl that are just the light of my life. So I completely get what you’re talking about self all about family. So thanks for sharing that. So and once again, thanks. It’s been a great conversation. I look forward to our next for our audience. If you’ve enjoyed our podcasts, please rate review, subscribe and share what we’re doing here at well, tech on deck. We’re available wherever you get your podcasts and Ed it’s been a real pleasure. I look forward to the next time we have a chance to chat.

Ed Murphy: Thank you, Jack. My pleasure. Really enjoy.