Charles Nelson, chief executive of retirement and employee benefits at Voya Financial Inc., oversees one of the largest defined-contribution plan record-keeping businesses in the U.S., administering $304 billion in retirement assets as of June 30.
Mr. Nelson, who goes by Charlie, has a long history in the retirement industry. He served as president of retirement services for Great-West Financial until 2014, when the company merged its record-keeping operations with those of sister company Putnam Investments and newly acquired JPMorgan Retirement Plan Services to create Empower Retirement.
InvestmentNews sat down with Mr. Nelson, who assumed his leadership role at Voya in 2015, to discuss the DC plan market, big M&A deals and why Voya spends more on cybersecurity than on marketing.
Note: The interview has been edited and condensed for clarity.
Greg Iacurci: How tough is the revenue environment right now for defined-contribution plan record keepers?
Charlie Nelson: Revenue compression is nothing new in the industry. We've been dealing with this for what feels like decades. I think it's just the competitive nature of the industry. There are some 63 different DC record keepers, so by nature you're going to have a competitive environment.
GI: Record keepers are branching into different business areas and starting to monetize participants a little bit more. Is fee pressure getting to a point where that becomes more necessary?
CN: I think it's largely been part of the dynamics and strategies of various firms. Within Voya, our record-keeping business stands on its own. It's a profitable business. It continues to be a challenge for some providers who don't have the book of business, the size, the scale, and so they then have to look for other revenue sources.
Some are looking for more retail relationships to take people out of the DC plan and move them into a retail product. There are some providers who are really indexing their rollover business.
GI: You hear of some firms cross-selling insurance products, for example, to retirement plan participants as a distribution outlet.
CN: I think that goes to the size, the scale of the business strategy of the various providers. If you don't have the size and scale to be competitive and you need additional revenue, you'll try to find those revenue sources, whether it's rolling out of the DC plan or whether it's adding additional product.
GI: Where are you spending the most time right now?
CN: It's hard to put a finger on any one thing. First, it's growth. There's a lot of market activity right now. There are a lot of plans out to bid, so we're busy on that dimension of the growth equation.
On the other side, we're spending a lot of time and attention, in large part because of interest from plan sponsors and advisers, on financial wellness.
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GI: How sophisticated will these financial wellness programs get?
CN: I think there's more opportunity there. As we think about these tools, more and more we're looking to our workplace to help us manage our money and understand all these benefit choices to make. [Clients say] give me some tools, whether they're digital, using a more AI-type technology to drive the next-best dollar.
GI: So the next iteration of these programs will determine where a participant's money should go?
CN: Broader financial wellness and where should the money go. It's not necessarily any one particular, but making sure we're having a holistic view of someone's situation. Going back 15 to 20 years, we were very focused on the DC plan. Now we've opened up as an industry more broadly.
GI: Let's talk about the M&A market. The Principal-Wells Fargo deal was the last big deal. Do you see deals of that magnitude becoming more regular?
CN: I think there will be more transactions, more consolidation. You have 63 providers, and the top 10 have 75% of DC assets. That suggests that there's going to be more consolidation. It's just a matter of when. That may be by some smaller providers, but it also may be for some larger providers. Wells Fargo was one recent, but there have been others in the 1 million to 2 million participant range in the last five, six, seven years as well. It's never a regular cadence. These things happen on their own.
GI: Give me a sense of how much Voya and the industry are spending on cybersecurity initiatives.
CN: It's very important, and it's an increasing amount. And it's not just cyber. We're also seeing a lot of voice fraud and other ways of people initiating identity theft.
It may not come through a digital experience but through the call center. Interestingly enough, that's probably one of the more prevalent places where we see an awful lot of intent: through the call centers and people impersonating someone and trying to steal someone's identity.
[Record keepers] work together on security. When we identify a suspicious URL or IP address, we're sharing those. I'm alerting my competitors, [saying] if you get this one, we know this one's bad.
We're doing so much with voice diagnostics for every call. There are literally hundreds and hundreds of data points we track on every call. We can monitor and it gives a live read to the call center rep, and rates the call as to what's the potential that this is a fraudulent call. It's very sophisticated.
GI: How expensive is it for you to maintain or improve these systems?
CN: Let me put it this way: We spend more on security than we do on our brand. That tells you how important we think security is.