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Empower Buys Prudential Retirement Assets for $3.55B

Empower Retirement's acquisition of Prudential's full-service retirement business is making it more competitive with Vanguard and Fidelity.

In a deal valued at $3.55 billion, Empower Retirement is buying Prudential Financial’s full-service retirement business, the firms announced on Wednesday. Prudential expects to receive total proceeds of approximately $2.8 billion from the deal. Empower, the second-largest player in the retirement plan record-keeper space behind Fidelity, will receive Prudential’s defined contribution, defined benefit, nonqualified and rollover IRA businesses.

Included in the transaction, which is subject to regulatory approval, will be Prudential’s full-service retirement record-keeping business of more than 4,300 workplace savings plans consisting of approximately 4 million plan participants and $314 billion in assets. Empower Retirement will also be the new company home for the more than 1,800 former Prudential employees who provide retirement record-keeping and administration services to participating financial professionals, plan sponsors and participants, according to the announcement.

Following the close of the deal, Empower expects to have a retirement participant head count of 16.6 million individuals and grow its retirement services record-keeping assets to roughly $1.4 trillion administered across approximately 71,000 workplace savings plans.

There are 27.2 million IRA and 401(k) accounts managed at Fidelity by comparison. Principal Financial Group and TIAA round out the the top four providers.  

“Empower and Prudential share a commitment to serving the financial needs of working Americans, their advisors and employers,” said Ed Murphy, president and CEO of Empower, in a statement. “This transaction will create an even stronger service organization at Empower, fueled by technology and the expertise of our deep talent pool.”

Empower is ready to “challenge the status quo,” he added. The firm is “positioned to serve the retirement and wealth management needs of millions of retirement savers in every phase of their financial journey.”

Prudential’s retirement business will be reduced to its Pension Risk Transfer, International Reinsurance, Structured Settlements and Institutional Stable Value lines of business. Its institutional investment products and annuities businesses will continue intact, as will its asset management business.

“Today’s announcement is a significant milestone in Prudential’s transformation,” said Charles Lowrey, the firm’s chairman and CEO, in a statement. The firm is focused on becoming a “higher growth, less market sensitive [and] more nimble business.”

Empower, which bought hybrid advice pioneer Personal Capital for $1 billion last year, is owned by parent company Power Financial, which has a controlling stake in robo advisor Wealthsimple. It will be moving participants acquired in the deal to a “single state-of-the-art technology platform,” according to the announcement. “Empower will offer a highly personalized digital experience that can integrate the elements of any individual’s financial plan to help them better understand their current financial needs through financial advice and goal setting.”

With this deal, Empower continues upping its bets on its ability to service the retirement space through a combination of technology and hybrid advice, said William Trout, director of wealth management at Javelin Strategy & Research. “Technology is really the only way to break the trade-off between scale and customize service. Empower is making a big bet on that technology,” he said. Advisors are already having a tough time in the retirement space. Firms with scale and technology, like Empower, are only making that more challenging.

The deal could also spell trouble for firms like Vanguard and Fidelity, he said. Empower is readying itself to take revenue from those firms. “Vanguard and Fidelity are committed to serving the whole client from cradle to grave. As they start losing assets in the defined contribution space—and even afterwards—it's very hard to build that kind of momentum, that client journey, that they purport to support,” Trout said. “The big boys are going to have to find a way to serve the smaller plan market.”

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