General News

Principal Acquires Wells Fargo’s $827 Billion Retirement Business

General News|Apr 10, 2019
Wells Fargo

Principal Financial Group is paying $1.2 billion for the bank’s retirement business, which serves 7.5 million U.S. customers.

Michael Thrasher | Apr 09, 2019

Principal Financial Group is acquiring Wells Fargo & Company’s Institutional Retirement & Trust business, a unit that serves 7.5 million customers and oversees $827 billion in assets, for $1.2 billion, the two companies announced Tuesday.

The deal is expected to close in the third quarter of this year, pending regulatory approval. Principal is financing the $1.2 billion purchase with cash and senior debt financing. Wells Fargo can also earn an additional $150 million contingent on better-than-expected revenue retention and payable two years after the deal closes. No other specific terms were disclosed.

The acquisition doubles the size of Principal’s record-keeping assets, making a juggernaut in the retirement space even larger, while diversifying its client base. More than two-thirds of Wells Fargo’s institutional retirement assets are in midsize employers’ plans ranging from $10 million to $1 billion, according to Principal.

“Retirement is at the heart of our business and core to our future,” Dan Houston, the chairman, president and CEO of Principal, said. “This will be a powerful combination for customers, employees and shareholders as we solidify our place as a top-three leader in the U.S. retirement market.”

Shedding the Institutional Retirement & Trust unit, which includes defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust, and custody and institutional asset advisory businesses, is a stark change relative to at least one other wealth manager. Morgan Stanley just reorganized its wealth management business to fold in the recent acquisition Solium Capital Inc., a stock-plan administration company the bank acquired in February for $900 million. It also has been vocal about seeking to make other acquisitions and adding to its wealth management business to help serve the employees of the more than 1,000 companies it provides retirement accounts and stock options to, as plan sponsors seek ways to help improve their employees’ overall financial health.Advertising, Mouse Over For Audio

Rob Foregger, co-founder of NextCapital, a company that provides enterprise digital advice solutions to Transamerica and other financial services firms, said he expects there will be more consolidation amongst recordkeepers. But a well-executed strategy like Morgan Stanley’s can make a retirement business especially valuable. Much of Fidelity Investments’ asset management growth has stemmed from its retirement business, said Foregger, who spent nearly two years as the president and led Fidelity’s retail banking services.

A Wells Fargo spokesperson said the sale of the retirement business to Principal reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximize opportunities within wealth, brokerage and asset management.”

Lazard and Debevoise & Plimpton advised Principal on the transaction.

About the Author: Brandon Oliver
Brandon Oliver

Brandon T. Oliver is a Managing Partner of Arcwood Financial LLC. a Registered Investment Advisor Firm, and an Arcwood Consulting firm. Brandon is an Investment Adviser Representative and currently holds his life and health licenses as well as the Certified Financial Planner (CFP®) designation. Brandon started working in the securities industry in 2005. Soon after developing his skills in the financial services arena Brandon lead the Orphaned Client Division at a regional broker dealer where he assisted clients across the country who no longer had representatives. From there he also began assisting in the recruitment and branch development of new advisors for the same broker dealer. At Arcwood Financial LLC, Brandon is a specialist on plan investment menu design, managed portfolios and the monitoring of the designated investment options, plan providers, participant education and committee governance. When not working, Brandon enjoys spending time with his wife Summer and son’s Hayden and Remy. They live in North Central Phoenix, Az.