The recordkeeper at the center of retirement innovation

A Q&A with Scott Boyd, Principal FinancialGroup, and Brendan McCarthy, Nuveen.

Key takeaways

1. Recordkeepers are reasserting their role as the industry’s central platform, connecting plan sponsors, advisors, asset managers and participants as retirement dynamics become more complex.
2. Recordkeepers do not need to build every capability themselves, but they do need to identify the right partners and align incentives around shared goals.
3. As solutions become more portable and cost-efficient, the focus is moving toward helping participants turn the savings they have accumulated into reliable retirement income.

A Q&A with Scott Boyd, Principal Financial Group, and Brendan McCarthy, Nuveen

Brendan: Scott, let’s start with your background. How did you end up in the seat you’re in today?

Scott: I’m a little unusual for someone in a sales leadership role since I’ve never truly been a salesperson. I studied civil engineering in college, spent time in strategy consulting at PwC and investment banking, and have worked across the industry as a product leader, business owner, P&L owner, and an individual contributor.

Over time, I edged my way to distribution and realized that’s where my passion is. I like being part of a big team that wants to compete and make a difference. That ultimately attracted me to Principal Financial Group, where I’m leading an organization through what I think is the most transformational period our industry has seen. I also think my background gives me a different perspective. I tend to come at the business through a problem-solving approach and a focus on the overall business components, rather than through the lens of trying to hit annual sales goals.

Brendan: What is driving that industry transformation you mentioned?

Scott: Ten or 12 years ago, the recordkeeper was viewed as somebody who was there to take orders. Investment managers had more influence, and then the advisor space came to the forefront. Advisors pushed investment managers on pricing and product, and the industry saw significant aggregation into large advisory firms.

But I think we’re at a point now where everybody’s realizing that all those players are incredibly important, but the recordkeeper is still the linchpin of the industry. Everything flows through the recordkeeping platform, and sponsors, participants, advisors and investment managers rely on it every day. That gives recordkeepers a unique role in bringing the pieces together as products, technology and participant needs become more complex.

That’s leading to healthier conversations. There’s a growing recognition that we as recordkeepers can deliver more value to sponsors and participants when each party understands the economics of the others involved and works toward a shared outcome. When those interests are aligned, the relationship can be incredibly powerful. When they’re not, you see friction.

Brendan: That seems particularly relevant to lifetime income. How do you think about partnerships in that area?

Scott: I’ve been an income guy since the very first products came out, and I’ve seen the market evolve immensely. As a recordkeeper, we know we are not going to create every capability ourselves. We need to rely on partners to bring expertise that we can incorporate into our offering.

We use a bicycle analogy. If you think about the best bike in the world, that bike doesn’t necessarily have every component made by the same company. Someone else may make the saddle or the wheels, but it is still the bike you chose to buy.

Recordkeepers need to think the same way. You don’t have to manufacture everything yourself. You can bring in the expertise of a firm like Nuveen in the income space, while still providing choice. If a particular product matters to advisors and sponsors, having it on our platform can also differentiate us and help bring business to Principal.

Brendan: How did the Principal–Nuveen relationship come about in the first place? In my mind it’s got to start with a trusting relationship. It’s understanding each other’s economic levers — where the primary economic levers are for each organization, each partner. And then it’s aligning on a strategy that maximizes the economic levers for both organizations. When you can come together on that, really powerful things can happen, but it has to start with that trust — the leadership of the organization trusting another organization that they’re not going to go in and trounce all over areas that are economically accretive to the other organization.

Scott: I agree. It all starts with relationships and trust. You’re putting a lot of faith in one another, and both organizations have their own priorities.

The goals are getting bigger and the industry is becoming too complex for any one company to do everything on its own. When two organizations understand where each creates value and where their interests overlap, they can do much more together.

Brendan: Does that same logic apply to advisor relationships?

Scott: Absolutely. Lifetime income is a great example. If you think about Nuveen’s product on Principal’s platform, we’ve both had to learn each other’s products and platforms. The advisors have to really spend the time on the platforms where lifetime income solutions are available and understand them.

Years ago, an advisor may say, “I have a client that wants this product, so I need you to build it on your platform.” The cost-benefit analysis for the most part didn’t work, no matter how big the client was.

The conversation is different when a large group of advisors is advocating for a solution. We look at that and say, well, that’s a pretty compelling argument for us to be differentiated by being one of a few platforms with the desired product on it, which gives us the opportunity to be one of the landing spots and narrow the field down.

I spend most of my day figuring out how to connect the dots between intermediaries, our investment partners, the recordkeeper and other parts of our business. Product innovation is moving faster, the partnerships are becoming more intentional and more powerful, and I think that’s only going to create greater separation between industry leaders and everyone else.

Brendan: Looking ahead three to five years, where do you see lifetime income going?

Scott: I think you’re going to see solid growth, particularly in products designed with a low-cost front end and greater portability. There’s growing recognition in the industry that you don’t get a second chance as a participant — you either make your savings last in retirement, or you don’t.

Early on, we would talk to a plan sponsor about lifetime income and hear “This participant only has $40,000,” or “Their account balance is only $120,000 — that’s not enough.” That’s not a retirement income challenge, that’s an accumulation problem.

Of course we want people to accumulate more. But whatever balance a participant reaches still needs to do what it was designed to do: help generate income in retirement. If it is $120,000, we need to help that $120,000 work as effectively as possible.

Keeping those conversations separate is important. Accumulation has its own set of challenges and solutions. When you focus the retirement-income conversation on turning accumulated savings into income, the value proposition becomes much clearer to plan sponsors.