Personalization, Scaling Efficiently, and Serving the Underserved with Ed Murphy

Jack Sharry: Hello, everyone, and welcome to our podcast WealthTech on Deck where we talk to industry leaders about the future of digital and human advice. Today, we’re fortunate to be talking with Ed Murphy, who is the CEO of Empower Retirement. Empower is the second largest retirement plan record keeper, they administer $1 trillion in assets for nearly 12.5 million Americans and his team have made a series of very smart acquisitions over the past few years. One of the more notable and something we can talk about a little in a little bit is the acquisition of Personal Capital. Personal Capital is an industry leading hybrid manager, wealth manager managing over 13 billion in assets for more than 2.5 million customers. Empower also has acquired or combined with a series of record keepers, we’ll talk about this as well. But among those that have been combined over the past few years: Putnam, JP Morgan, Great-West Life, MassMutual, Fifth Third Bank, SunTrust/Truist, and others as they’ve built their leadership position. So we’ll talk about those combinations about Empower serves the retirement plans market, their intentions with Personal Capital. So with all that said, Ed, welcome. Good morning.

Ed Murphy: Good morning, Jack. Pleasure to be here.

Jack Sharry: Yeah, good to have you. So let’s start. Why don’t you provide our audience some perspective on how you got here, your career, just the highlights version of where you come from, I know you spent time at Fidelity and Putnam but maybe just so that they have a sense of your background before you get to Empower.

Ed Murphy: Sure. Well actually started off as an FA at Merrill Lynch, and right out of college, I graduate from Boston College and went right to Merrill, and did that for about six years before joining Fidelity. And then I spent 17 years at Fidelity in three areas, the retail business, the private equity area, I spent about five years in the private equity area. And then the institutional side of the business primarily the defined contribution space. One thing that many people don’t realize is that Fidelity owns a lot of companies, many of which are unrelated to the investment business. And these are wholly owned subsidiaries. And so during my tenure, on the private equity side, I had oversight for many of those portfolio businesses, which included companies like advisor technology services, which is a software provider to banks, an executive search firm called J. Robert Scott, a contingent staffing firm called Veritude. I was chairman of Boston Coach. At the time, it was the second largest ground transportation company, and also on the board of the Seaport Hotel and World Trade Center. So it’s kind of an eclectic portfolio of businesses, but a lot of fun, I learned I learned a great deal. And then I transitioned over to the, back into the core side of the business, the defined contribution space and ran the small market business, and then ran, essentially all of the retirement business at Fidelity, with the exception of the back office, before leaving to go to Putnam in 2009, joining my colleague, Bob Reynolds there, and my assignment there was really to re enter Putnam into the defined contribution business, they had sold off their assets to Mercer. And when Bob took the job as CEO of Putnam, one of the green lights that he received from the owners, Power Corporation, was to launch a disruptive, innovative platform into the defined contribution business. So that’s what we did. It was a very small team, about 25 of us. And then we grew that, which ultimately led to the combination and the merger with Great-West Financial, Putnam’s sister company in Denver. And then the subsequent acquisition of JP Morgan, we merged those three entities together, and then rebranded the company Empower in 2015. And then, as you noted, we’ve done some additional acquisitions, certainly since 2015.

Jack Sharry: Interesting, I knew some of that, but not all of it. It’s good to know. So, you know, I’ve talked about this before, there’s all sorts of mergers and combinations going on: Schwab, TD, USAA, Edelman Financial Engines, Goldman Sachs, United Capital, Morgan Stanley sold E-trade, Eaton Vance, all the Envestnet companies that have come together and all that you’ve done at Empower. Talk a little bit about that. I love the strategy, but for folks listening in I’m sure they’d be intrigued to hear, was that what you had in mind when you started or is that sort of what became evident as the next thing to do as you built out the business?

Ed Murphy: It was always part of the long term vision for us. I think what accelerated it, Jack, though, was just this insatiable appetite for advice and guidance on part of plan sponsors and, and participants, in plan participants. And so if you think back five to seven years ago, the idea of providing information or opining on things outside of a participant’s 401k plan was generally not accepted or embraced by sponsors, they really expected you to stay within your box sort of speak. But that’s changed. And for lots of different reasons. And today, both the sponsor and the participants are expecting providers like Empower to do more. And to take a more holistic approach. There’s a much greater focus on wellness, a holistic approach to financial planning. And so I think that in part was the impetus for us to say, you know, we have a platform, we can do some of this, but we don’t think we can scale that capability with the technology that we have and the interface that we have. And so therefore, we need to build by our partner with someone that has a direct to consumer platform, that’s leverageable. And that’s what ultimately led us to Personal Capital. I knew about Personal Capital, because we had engaged in some discussions and dialogue with them back in 2016-17. But primarily from the standpoint of establishing a partnership. And then it just evolved to a point where we decided to make an outright acquisition. One of our affiliate companies in Canada, IGM Financial, actually owned a meaningful interest in the company as well. And so there was some familiarity from our parent and for our parent’s parent, in Canada. So I think that’s what we’re seeing happen in the marketplace. There’s also, when you think about it, there’s 128 million mass affluent households. And many of those households are underserved today. Oftentimes, RIAs and the big broker dealers are typically focusing on much larger balances. And yet those customers have real needs, whether it’s retirement, college savings, emergency savings. And so I think there is a void there. And I think a lot of companies are seeing that. And so that’s led to some of these combinations.

Jack Sharry: Interesting. So talk a little bit more if you would about, so three parts of the wheel here. One is talk a little bit about your parent, because they’ve funded a lot of these acquisitions. Talk about that. I think I know the answer. But the the idea behind all these record keepers that you combine, I think that’s a scale play. But talk about that, if you would, and then where you want to go with Personal Capital, that looks like the the interface with the marketplace that goes beyond retirement plans to their full household holdings. So maybe talk about how all that comes together.

Ed Murphy: Well, first, Jack, on the parent. So we’re, Empower is, as you know, is a sister company of Putnam. So we’re both owned by the same entity. It’s a publicly traded holding company in Canada, it’s traded on the Toronto exchange called Great-West Life Co., about a $25-27 billion market cap, and diverse holdings, primarily insurance and reinsurance. And asset management holdings across the globe, a significant interest in Canada, obviously, and also significant presence in Europe, we own Irish Life, which is the largest life insurance provider in Ireland, albeit a small country, but they’ve got about 60% market share there. And that entity is own primarily by Power, Financial Power Corp in Canada, which is controlled by the Desmarais family. And both Paul and Andrea are second generation leaders and they both sit on my board, they’re in their early to mid 60s, and are very active in the in the portfolio. And the approach tends to be a long term approach, the focus is to be in businesses where they can be one or two in the space. So to be a market leader, and then to grow, obviously, organically through ideally a superior value proposition, but then to be opportunistic, as well. So if opportunities emerge, that make sense, that can add to scale, as you suggested, or perhaps it introduces a whole new capability that rounds out our offering, our solution, maybe it’s a product extension, then those are the types of things that we’ll pursue. So it’s interesting, even though we roll up through a publicly traded entity that certainly has quarterly earnings reports, and is beholden to investors, there’s a good balance here, I think between the short term and the long term. And I think you’re seeing that with the investments that they made in Empower. In 2020, 4.5 billion dollars of investments during a global pandemic. And tremendous macro uncertainty, I think is a significant statement about what they see in the US market, and how they feel about Empower as an entity and our ability to grow and create shareholder value. So, from that standpoint, we’re pretty excited about it.

Jack Sharry: So one of things I find fascinating is that you read about, in the industry press, about wealth managers trying to take over the world in all the ways that they do. You don’t read as much about what groups like yours, you’re doing. Certainly it’s in the DC industry press, you read about Empower and Financial Engines and so on. I’m interested to see how this seems to be a convergence between the DC side coming to the wealth management side or the mass affluent service side. And Personal Capital seems to be that connection. Talk a little bit about that. What’s the role you see for Personal Capital? Where do you want to take it? Talk a little bit about where that heads.

Ed Murphy: Sure? Well, again, if you think about our business, with the acquisition of MassMutual, we now have roughly 12.5 million participants on our platform. And we’ve traditionally been more of a business to business player. So we haven’t spent a lot on our brand in the way of sponsorships and promotion and advertising. We’ve certainly done some things, as you know, in the professional sports realm, but largely, it’s been a B2B play. And the idea with Personal Capital was twofold. One, we thought we could strengthen and enrich our B2B record keeping value proposition by embedding Personal Capital’s capabilities into our user experience that we provide to those 12.5 million participants. So I think when observers looked at this transaction, they said, Oh, this is just a platform play in the retail space. Well, it’s part of that for sure. But we’ve been in that space for a while we have 17 billion in assets and 160,000 customers in that sort of captive rollover space, obviously, we want to scale that and grow that and that, that was one of the reasons why we pursued Personal Capital. But my belief was always that we could continue our innovative edge that we’ve, I think we’ve had in the defined contribution space, because we’re growing organically at two and a half to three times the rate of the market, I thought we could extend that reach by bringing new capabilities to bear. And that’s what we’re doing. And that’s part of the integration that we’ve undertaken, we’ll be rolling out pretty meaningful value added capabilities to our DC participants starting in the second part of Q2. So pretty excited about that. And then, to your other point around the retail side, as I mentioned earlier, while we have a, I think a good platform, it’s certainly not one that could scale to the levels that we think are needed. That’s what we’re doing with Personal Capital, we’re importing, basically, the front end, the back end. And that’s essentially replacing the platform that we have today to serve out of plan customers, right. So their customers typically have rolled to us out of the DC plan, because they retire or they change jobs. And in some cases, they’ve opened up taxable accounts with us, or they’ve had a good experience with the rollover and they’ve decided to consolidate more of their assets with us. And so that’s really been our approach. As you probably know, Jack, on the B2B side, on the defined contribution side, we do not sell direct. So unlike other competitors that have sales forces that sell direct, that will call directly on sponsors, we don’t do that. We have sponsors that approach us all the time, and we won’t take the business, we basically say, look, we believe in this triumvirate, we believe in the role of the advisor, the intermediary, who’s acting as a fiduciary with respect to the plan sponsor, there’s the role of us, the record keeper administrator, and then there’s the role of the sponsor. In doing so we’ve engendered tremendous loyalty with the intermediary community. And that continues on the retail side, because many of the defined contribution advisors either have their own or they’re part of a wealth management practice. And so as long as they and/or the sponsor direct us, and suggest that they can meet the needs of those customers, then we’ll defer to the advisor. And so we won’t in effect compete with them, if you will, on those rollover opportunities. The market’s plenty big enough, you know, we have anywhere between $50-60 billion, that will, that effectively is money in motion, if you will every year. But what we do know is there’s an unmet need out there, our sponsors are expecting us to fill that void, and participants are expecting it as well. So that’s really the rationale behind what we’re trying to do here. It’s really leveraging that base of 12.5 million customers and providing a breadth of services to them. And then keep in mind, as you mentioned at the outset, Personal Capital has their own core business, where that brand has been in the market for 11 years, there’s 17 billion in assets. They’re serving 26,000 customers. They’re growing at a pretty impressive clip, that will continue their branded now as Personal Capital and Empower Company. So they have, in effect, this standalone effort into the marketplace, but we’re also working and collaborating with them quite a bit. Because there may be clients that come to us. And in this pre integration phase, we can meet those client’s needs. And we’ll refer them to Personal Capital, which is effectively part of Empower, right. And so we just think we’re in a much better position to serve the needs of our clients today than we were, you know, a year ago.

Jack Sharry: So I read a couple of statistics I picked up recent, very recently, that sort of blew me away. I’d love to have you comment on them, that in 2020, four times as many people retired in 2020 versus 2019.

Ed Murphy: Wow, I had not seen that statistic.

Jack Sharry: Yeah, Pew Research is where I saw that.

Ed Murphy: Incredible.

Jack Sharry: And then that money in motion is up 350% year over year, 2019 versus 2020. And that was a McKinsey number. So one of the things that obviously, we’ve been experiencing the whole COVID phenomenon. Seems like your timing is good to help people figure out next steps, it seems that I know, in our experience, the first two questions people ask is, “What do I do with my rollover?” and “What do I do about Social Security?”

Ed Murphy: Right.

Jack Sharry: We work together on the Social Security front, I imagine your stock and trade item, if you will, or piece of business. But talk about that if people are moving and the whole baby boomer wave is, is here, median age is 65, median retirement age is 62. So people are now moving into the income phase. So talk a little bit about this whole wave that’s now been accelerated because of COVID. Sounds like to me like you guys are very ready, as you more fully integrate your various capabilities to serve that mass affluent market, which is coming your way.

Ed Murphy: Yeah, I think I think execution is the key for us in terms of getting there as quickly as we can to meet the needs of those clients. I think that the point you raised is very well stated. We had this demographic occurring anyway. Right? We always cite the statistics of 10,000 people turning 65 every day. The pandemic, as you’ve suggested, has just exacerbated it, and also, I think, underscores the fact that there is this pressing need out there, right? You know, I’ll share one statistic with you that I found incredibly compelling. If you look at the completeness and the robustness of the Personal Capital offering in terms of the number of customers both paid and non paying that leverage their tools, 2 million customers, and over a million are using their aggregation, our aggregation services, right. So they’re seeing real value in that in terms of being able to look at their net worth, to look at cash flow, to optimize income, to optimize the fees that they pay, etc. And here’s the one statistic that I found really impressive when we were doing our due diligence on Personal Capital: their users are logging in, on average, 17 times a month. So that’s engagement. That’s individuals that are seeing value, that want to stay connected with their savings and their investments, they want to look at it holistically. And they want a provider that’s going to be able to address all this in a way that’s timely and personalized. And that’s in large part, what we acquired in Personal Capital, the capabilities to be able to do all of that. They’ve got a very powerful communications engine that is adaptable, and flexible, allowing us to really craft the messages that we need to the different constituents, whether it’s a participant, a sponsor, a retail customer, an advisor. And that’s something that we’re going to leverage in a pretty meaningful way. But I do think, as you’ve suggested, with what’s occurring, and this insatiable appetite for advice and guidance in financial planning, and to have it be timely and to have it be personalized, I think is where the market is going. And I think it’s hybrid, too. I think people want that human component. All the surveys that we’ve done suggest that they do. And, you know, at the same time, as I mentioned earlier with the, with the level of engagement, that we’re seeing with Personal Capital, both on their site and through mobile, it would suggest that they really want it both ways, right? They, they don’t necessarily need to talk to somebody every day, but they do want to log into their accounts, perhaps every other day. And they may want to talk to a human being a couple times a month, or whatever the case might be. So that’s really the path that we’re that we’re pursuing.

Jack Sharry: Yeah, and we’re seeing the same in our business where the future is clearly advice. It’s digital and human. It’s not one or the other. It’s really both. Digital can do all that we know it can do. But at the end of the day, you want to talk to someone to sort of try out ideas and just get some guidance. And another phenomenon we’re seeing is not only this coming together of the various accounts and products that they’ve accumulated over time, but they’re really looking, trying to understand, so what’s my next best thing to do? Where do I, we found this on our Social Security tool that basically when you tell me when I should file for Social Security and how, my next question is, “Okay, thank you, I trust you. Now, what do I do?” That sort of leads to that next question. So too on the rollover, if I have a rollover, why should I go to Empower? Or Why should I go to Financial Engines? Or Why should I go wherever I might go? What’s the value prop? And I know you’re clearly, by what we’ve talked about today, you’re building the kind of capabilities where you can say, “We can help you.” You know, whether it’s with your own advisor or with Personal Capital, whoever might want it. But how do I pull all this stuff together to, because now it’s getting real, you know, that when you go to retire, there’s like, no second chances, you got what you got. Now you got to get a play your hand just right. So we’re gonna wrap up here. And I really appreciate the time, I wonder if you could share with the audience three key things that you pay attention to in your business that might be of interest and value to the folks that are listening. What are you, what are you focused on as you head out?

Ed Murphy: Well, a couple things. I think as we get bigger as a company now, with close to 9000 associates, you know, one of the things that I’m very focused on is not becoming an insular company, but that we continue to take an outside-in approach to everything that we do around product development, and messaging, and communication, and stay really engaged with the client. That’s been I think, in part Empower’s hallmark, that we all roll up our sleeves, we’re all customer facing people, from me all the way down through the organization. And that’s expected of everyone. So I want, I want that to continue to drive a lot of what we’re doing.

Jack Sharry: And when you say client, define that, who do you mean by client?

Ed Murphy: I mean, the sponsor, the intermediary, and the participant, all three constituents. Yeah. And then I’d say, secondly, is this whole theme that we talked about earlier around personalization? You know, technology and data, I think, are the critical enablers. I always say to my team that, first and foremost, we’re a tech and data company. And so that’s a big thrust for us as it is for everybody else, is how do you take that information, and present it in a way that’s usable, and actionable, and timely. So personalization, it’s a popular word today. And it’s easy to say, but hard to do. And so that’s something I’d say that we’re, you know, critically focused on, as I know others are. And then the third is, you know, we’re all facing tremendous headwinds around, certainly the regulatory environment, but also around fee pressure. And whether that’s an on the investment side or on the admin side, it doesn’t matter. And so scale really matters. And I always remind my team that the definition of scale is that every new participant you bring onto the platform, you’re bringing that participant on at a lower cost than the prior one, using the scale that we have as a cost advantage for us and as a price advantage for us, is really important in order to continue to accelerate our growth, and to keep this two to three times growth rate going. And so that’s something that that we’re continually focused on as well. So those have been sort of the three things that that I’m thinking about, not the only three, but certainly three important ones.

Jack Sharry: If you can keep your eye on the prize of those three, you I think you’ll continue to success. One last question: share with the audience, something they may not know about you. What do you do when you’re not doing this kind of work? What do you do for fun? Or what’s something that might be unusual that our audience would be intrigued to hear?

Ed Murphy: Well, yeah, I like to play golf. I’m not very good at it. But unfortunately, I don’t get to play as much as I’d like. Pretty active walker and runner. So I usually get my six miles a day. And, but I’d say the one thing that people probably wouldn’t know is, if I wasn’t doing this, I’d probably be in, in government. I probably would have run for public office. I’ve always had a passion for it, now less so now. You know, given the political, given the political climate. But you know, I worked on Capitol Hill for a while and I worked for the chairman of the House Appropriations Committee, C.W. Bill Young from Florida. I went to high school in Florida and worked for him for a little bit. And I remember when I was going before the Eagle Scout Review Board, I got my Eagle Scout when I was 17. And they asked me, “What do you want to do when you grow up?” And without hesitation, I said, “I want to be governor of Florida.” I don’t think that’s gonna happen, Jack, but I do, I do love politics.

Jack Sharry: That’s great. Well, thank you for sharing that. And thanks for sharing all the perspective on your strategy and how that’s evolving. It’s pretty impressive, I have to say.

Ed Murphy: Thank you.

Jack Sharry: Yeah, so that’s great. So thank you, Ed Murphy. I appreciate you spending some time with us on WealthTech on Deck. So, I look forward to our next conversation.

Ed Murphy: You got it. Thanks, Jack.