Empower CEO Expects Continued Recordkeeper Consolidation

Empower CEO and President Edmund Murphy expects continued consolidation in the $9.3 trillion workplace retirement market, and he expects the country’s second-largest recordkeeper will continue to play a role.

“I think the consolidation trend in the defined contribution space is going to continue, it’s likely going to accelerate, and I think Empower is uniquely positioned as a skilled and adept M&A entity to be able to participate opportunistically,” Murphy told a live and virtual audience at parent company Great-West Lifeco US LLC’s investor day.

Murphy noted that while the retirement market does not show high growth, it continues to be ripe for further acquisitions. “The sub-scale players are losing out to the scale players—it’s a takeaway game,” Murphy said.

This week, 401(k) provider and administrator July Business Services Inc. acquired recordkeeper and third-party administrator Sunwest Pensions in its fourth acquisition of the year. Consulting firm Cerulli Associates predicted further DC recordkeeper consolidation due to ongoing fee and regulatory pressure in a July 2022 report. It also noted the growing attraction of wealth management and financial planning services for DC providers as areas of revenue.

In his presentation to investors, CEO Murphy focused on the 18 million participants Empower serves through its institutional business and noted the “great information and insight” it has about its customers, which could pave the way for transitions to the firm’s personal wealth business.

“To the extent that we can introduce [participants] to capabilities that we have—while they are an in-plan participant, before they make a lifetime decision like changing jobs or retiring—and build that trust and credibility with them, we think we can win the day,” Murphy said. “Whether you call it cross-selling, or whether you call it marketing services and capabilities to those customers, we think that represents a significant opportunity for us.”

Empower’s workplace solutions business accounts for 85% of its revenue, and personal wealth makes up the other 15%, according to the Greenwood Village, Colorado-based firm’s presentation.

Earlier this year, Empower rebranded its consumer wealth division as Empower Personal Wealth, building on its $1 billion 2020 acquisition of wealth manager Personal Capital. The division currently serves 500,000 customers and $60 billion in assets under administration, Murphy said.  

Rollover Capture

Murphy also noted the potential to capture assets on their way out of its retirement plan assets. About 6% of assets on Empower’s platform are in motion annually, Murphy said, noting that the firm is the top destination for that flow.

Carol Waddell, who Empower named in January as head of its personal wealth division, also focused on the 6% annual rollover potential among Empower’s participants. Speaking after Murphy, she also noted that for every $1 a typical person has in a retirement plan, they are likely to have $4 to $5 outside of the plan.

“That enables us to really expand relationships with individuals and offer them the opportunity to consolidate and simplify their financial lives [by] bringing that to Empower and seeing it in their dashboard,” Waddell said, referring to Empower’s proprietary dashboard that is available to both workplace plan participants and general consumers.

Empower’s Waddell also presented the firm’s personal wealth capabilities, including IRAs, managed accounts, high net worth solutions, a high-yield savings account and healthcare, estate and tax planning.

“We are only six months into our combined journey as Empower Personal Wealth business, but we feel we have a very strong foundation to grow upon,” she said.

Name Brand

CEO Murphy said the firm’s move toward wealth management started back in 2015, when it “recognized that billions of dollars are transitioning from our institutional platform because people are changing jobs or they are retiring. We wanted to build a capability to serve those customers for life.”

But growing the personal wealth business will require increased name recognition, Murphy told the audience.

“We’ve been investing quite a bit in the brand,” he said. “One of the challenges that we have is that we need to increase both our aided and unaided awareness. We are about half of what Fidelity is and about half of what [Charles] Schwab is.”

Murphy said Empower has started to move the needle and increase its brand recognition in the past two years, but it needs to continue to “build trust, connectivity and credibility with the end user.” He pointed to the firm’s personal wealth platform as a key vehicle.

“We think this is a significant growth opportunity for us,” Murphy said. “Part of what we are trying to accomplish is that those 18 million Americans that are on our platform understand the full breadth and capabilities of Empower—that our offering transcends institutional retirement, where we can serve them for life in the personal wealth space.”