Bob Reynolds, President & CEO of Putnam Investments, spoke recently about what he sees for the future of the retirement industry, public policy developments and his perspective on product innovation and market consolidation.
Reynolds, along with John Mitchem, Principal of JM3 Projects as moderator, was a keynote speaker Nov. 6 at the virtual SPARK Forum 2020. Reynolds and Mitchem collaborated on the 2017 book, From Here to Security: How Workplace Savings Can Keep America’s Promise, where many of the book’s policy proposals were included in the SECURE Act enacted in December 2019.
Reynolds kicked off the session explaining how he got into the business and some of the challenges and opportunities he faced along the way. “We were very active in Washington from the first day we started with really making sure the things we thought needed to get done were there on the table and being discussed,” he explained.
“I think back to the Pension Protection Act of 2006, there was a tremendous amount of dialogue that really changed the industry because automatic enrollment was allowed under the law, but every plan sponsor shied away from it because they said, ‘if I do that, someone’s going to come back and sue me.’ But to me, it’s one of the things that really make 401(k) workplace savings attractive,” Reynolds noted.
Reynolds also noted that he is always looking for opportunities to make the system better, observing that the retirement savings challenge is real for the millions of Americans who don’t have access to a plan. And, he noted, many times the market leads the way, followed by legislation which is accomplished by having that ongoing dialogue with Washington.
Reynolds pointed to the Securing a Strong Retirement Act of 2020 (a.k.a. “SECURE Act 2.0”), introduced Oct. 27 by House Ways & Means Committee Chairman Richard Neal (D-MA) and ranking Republican Rep. Kevin Brady (R-TX), as another example of moving the ball forward in improving the system. “Everyone agrees, we need to get more participants now. We did have MEPs in the SECURE Act, which I think is one of the great things the industry can do because we only cover 55% of working Americans and that’s not enough,” he says.
In addition to increasing participation, an area that still needs some work is coming up with solutions for retirement income. “We’re still in the second inning with retirement income; it is still a challenge,” says Reynolds, who notes that they’re still working hard on solutions. Securing a Strong Retirement Act of 2020
To that point, Mitchem suggested that such solutions are a “great product opportunity of decades” with a potential $20 trillion market. “It’s going to be big, but it’s not going to be a solution—it can be sort of an ecosystem of solutions—home equity withdrawals, some sort of program withdrawal, such as annuitization, perhaps deferred income annuitization for longevity risk,” he observes.
Responding to a question of whether 401(k) tax deferrals will be scaled back along the lines of the Biden proposal, Reynolds encourages industry stakeholders to stay vigilant and be prepared. “Whenever you have a change or potential change in a White House or Congress, I think retirement is low-hanging fruit,” he noted, and encouraged viewers “to have your antennae up because there is a discussion of doing away with pre-tax contributions and give just a tax credit. And the work that we’ve done over the years with making contributions pre-tax is a tremendous incentive for all contributors,” he notes.
Industry Transformation
As for how he views the merger landscape and how it’s reshaping asset management, wealth management and retirement industries, Reynolds says he believes a lot of the recent deals have been done for different reasons and that there’s not one consistent theme.
“I’ve thought for a long time that there would be a consolidation with recordkeepers—it’s definitely a scale game, and it’s an arms race from a technology standpoint to deliver the service and have the tools,” he explains. “I think you will continue to see that going forward because you need scale to compete—there’s no question about it,” he adds.
In other cases, he notes, firms want to be in the retail business or in the case of asset management, there’s a need to consolidate because of the way the products are distributed. “Whether you’re a wirehouse or a regional firm, you want to deal with, not 300 firms, but with maybe 10 or 15 firms. So you want to be able to do multiple things with that firm, and then you want to create a preferred list or a model portfolio,” he notes. At the end of the day, people are looking for alpha and how they can best get that, whether it’s through scale or a boutique business model, Reynolds observes.
MEPs and PEPs
Asked how he views open MEPs changing business dynamics, Reynolds said he believes the industry will begin to adapt and embrace MEPs and PEPs. “One of the challenges is participation levels or inclusivity of these plans and, right now, only 55% of workers have them and if MEPs takes that up to 80%, that’s a win for the country and a win for workers,” he explains.
And you can make money off MEPs, he says. “It’s there and you charge fees and they have investments, so to me, it’s just one of creating participation in retirement plans, which are beneficial for the country. We have to do it—if you think we can go along and only have 55% of working Americans with a retirement plan, it’s not going to work,” he says.
Reynolds also notes that he’s interested in seeing recordkeepers become more engaged in financial planning and financial wellness, as well as HSAs coming into the retirement space, as a way of having a total picture of finances available to the providers, all based on technology.
ESG and Private Equity
Responding to a question about ESG investing in light of the Department of Labor’s recent guidance, Reynolds believes that its usage will have a major role for 401(k)s. “ESG will be a major part going forward—especially when you use the strategy to generate superior returns,” he suggests. While some people believe it means eliminating groups of stocks, Reynolds suggests that it, instead, means weighting stocks based upon how they score in those different areas. “Historically, companies that have scored well perform well, so I think it’s an opportunity for greater returns for people participating in the plan,” he notes.
Reynolds also sees a role for private equity in plans. “You know, we’ve been looking at real estate for a number of years because it’s a good long-term investment, but the liquidity feature needs to be addressed and I think that’s something that, eventually, we’ll work through and it will become a valuable investment,” he explains.
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