Ed Murphy has led Empower since its founding in 2014. In that time, he’s overseen a series of large-scale mergers and acquisitions that have resulted in Empower’s growth into one of the country’s largest providers of retirement services. In this interview, which has been lightly edited for clarity, Murphy discusses the thinking behind the company’s acquisition strategy, the hallmarks of a successful merger (hint: don’t forget about culture), and what he sees in the future of both the company and the financial-services industry.
McKinsey: Can you tell us about the start of Empower and the journey you’ve been on over the past decade?
Ed Murphy: Empower was formed as a result of a combination of the retirement business at Putnam Investments and Great-West Retirement Services in Denver, both entities owned by a publicly traded Canadian entity called Great-West Lifeco. Then we acquired the JPMorgan Chase retirement business in 2014, which is when we rebranded the three combined businesses and introduced Empower. From there, we invested a lot in technology and the platform to support the integration of the three entities and retained a lot of the top talent from all three businesses. In fact, if you look at my management team, it’s very well represented by all the legacy companies. We really did a best-of-the-best approach in terms of both talent and technology. Since the formation in 2014, we have set the company on a path to grow organically at a rate faster than the market.
We also took an opportunistic stance with respect to M&A. This business is both capital-intensive and labor-intensive, so it’s all about scale. We made pretty significant investments in the platform to support the growth of the business so that we could entertain M&A and have the infrastructure to support that growth. Since 2015, we’ve done several transactions, but I think the four that get the most visibility and have had the greatest impact are JPMorgan, the retirement business of Mass Mutual, the retirement business of Prudential, and then the acquisition of Personal Capital in 2020.
McKinsey: How did that 2020 acquisition change the company?
Ed Murphy: It was pivotal because it accomplished three things. First, we were able to use Personal Capital’s capabilities to enrich and enhance the defined-contribution experience, bringing it to a whole new level in a way that transcends retirement savings as we bring the asset and the liability side of the ledger together for those, today, 17 million participants. That’s all been deployed; it’s in use now, and we think it’s a key differentiator for us.
Second, we’ve had this nascent direct-to-consumer business that we started in 2015, which was primarily supporting IRA rollovers. When participants either change jobs or retire, many of them don’t work with an adviser, don’t have an advisory relationship, and—particularly those with lower balances—are not necessarily supported and don’t know where to go for help. So we started that business in 2015, but to scale it we needed the capabilities that we got with the acquisition of Personal Capital. We were either going to have to build those capabilities or acquire, and we chose to acquire.
Finally, with Personal Capital we got a $130 million revenue stream, we got a 14-year start-up business with arguably the best digital hybrid wealth-management platform in the industry, and we also got people and the technology. We’ve essentially taken those capabilities and focused for the last 18 months on integration. Earlier this year, we launched Empower Personal Wealth, which is the combination of our existing business and the Personal Capital business. Empower Personal Wealth is our effort to work with both in-plan participants, which we define as the affiliated customer, and then the out-of-plan customers, which is the business that Personal Capital had been in previously. It’s great.
McKinsey: Many acquiring companies struggle to keep the top talent in the companies they buy. What are the keys to doing that well?
Ed Murphy: It’s a great question. If you look at why most mergers and acquisitions fail, often it comes down to the cultural dynamics—and those dynamics tend to be underrepresented in terms of what organizations focus on. The strategy is all about the financial and the operational aspects, and the cultural piece takes a back seat. From the very beginning, we set out to make that cultural aspect really important—because I’m a firm believer that culture matters and people want to work for a company that’s clear on who they are and who they aren’t—and stay true to the core values of the business. One of the things that we focused on is welcoming the new associates into the Empower environment and culture and creating opportunities for engagement. We’ve put a lot of care and investment in the onboarding process as new associates transition to Empower.
If you look at why most mergers and acquisitions fail, often it comes down to the cultural dynamics—and those dynamics tend to be underrepresented in terms of what organizations focus on.
Employee retention has been really strong. Even through the more recent Prudential and Mass Mutual transactions, to make the economics work and to make it accretive, we have to hit these cost synergy targets that we’ve communicated to the Street. Invariably, what’s happened is we’ve had so much organic growth in the business that a lot of the individuals who have transferable skills were offered other positions within Empower. For all intents and purposes, we’ve been able to avoid layoffs and still deliver something like $160 million, $180 million, in run-rate synergies for these businesses.
I think, from that standpoint, we’re not viewed as a slash and burn—we’re viewed as a growth company that’s going to invest in people. As long as we can continue to grow organically, we’re going to continue to have roles for people. As I said at the outset, it’s a very labor-intensive business. There’s a big client-facing component to what we do. We’re still a relatively new business in many ways. It’s about establishing those cultural norms and demonstrating that from the CEO all the way down, we truly care about our associates, and we focus on their success.
McKinsey: A lot of companies also said, “We’re going to buy a fintech and leverage its technology, people, energy, and new way of working to really catapult the core business.” We’ve seen some that haven’t worked out. Beyond culture and people, do you have any insights about buying a fintech and making it work?
Ed Murphy: When we bought Personal Capital, most of the management team had been there since inception. They’d been running a start-up for 14 years.
One of the conclusions we came to early on was that we wanted to continue to have them operate, at least in the near term, as an independent entity, all the while leaning in on the integration effort. They had a dual focus and a dual purpose that was very clearly articulated. It was well represented in the deal documents, and we did our best to respect that. And while the management team at Personal Capital was very focused on hitting the earn-out for themselves and for their investors, and on executing on their business-as-usual operations, they also had to engage in this integration effort by embedding their technology into the Empower defined contribution experience.
It wasn’t without its challenges. It was probably the hardest project on which I’ve had to execute, but I think it’s a credit to the team that we’ve formed this integrated entity, Empower Personal Wealth, and five of the seven key positions are held by Personal Capital leaders. That’s because Empower grew up as a B2B business, so understanding the consumer mindset, and the delivery of products and services to individual investors, is really not Empower’s hallmark.
We made that clear from the start: it was about best of the best, and it was about people who had these experiences that could lead a fast-growing integrated business and help us take it to another level. And in retrospect, it was the right decision to allow Personal Capital to maintain its brand and identity and not move so quickly to integrate them into Empower’s culture, recognizing the transition would take time.
McKinsey: Given that the inorganic plays are so important to driving long-term growth, how do you think about the muscle you’ve been building? Is it replicable?
Ed Murphy: Yes. I’ve been very clear that I think the future of Empower is another transaction or two on the institutional side, but we’re also going to be very opportunistic in expanding and growing the personal-wealth business. I think you’ll see us emerge as an M&A player there. Again, we’re leveraging the balance sheet from our parent company and the desire for Great-West Lifeco, in general, to invest in America.
Over the next 15 to 20 years, the wealth management business is going to be one of the best industries in this country for lots of different reasons. Our mission is broad: financial freedom for all. We don’t discriminate. The person who has $30,000 in discretionary assets needs wealth management help, albeit in a different way from someone in the high-net-worth segment. The complexity of the challenges and solutions are different, but everyone needs help, and most mass-market customers are not getting advice today. This is not a concept we are unfamiliar with at Empower. Our retirement business serves a wide range of plan types, from corporates to not-for-profits to government entities and unions, and plan participants ranging from the C-suite to hourly workers. We know how to engage well with people at all levels.
At Empower, we focus on those customer segments—mass-market and high-net-worth, as well as the in-between mass-affluent—with discrete service models, discrete product sets, and clear accountability within the organization to expand and grow that business. Empower Personal Wealth has more than three million customers who are using the dashboard and the tools for free. That becomes a reservoir of prospects for us. We think we’re uniquely positioned, and I can’t think of too many registered advisers that are going to do $25 billion in gross flows this year.
McKinsey: What innovations are catching your attention? What role do you think innovation is going to play in this market?
Ed Murphy: Relative to other sectors, I don’t think there’s been a tremendous amount of innovation in the retirement industry, but there’s certainly a need for it in many ways. We talked about the advice and guidance theme and the ability to drive the kind of engagement levels you need to get people to take action. That’s a critical area for firms like ours, and we need to make investments in new capabilities to try to drive engagement and produce better outcomes. I think the legislation around Secure 2.0 will undoubtedly lead to more new plan formation.
We know that’s been a challenge, in part due to fiduciary concerns and in part due to cost complexity. To the extent that we can remove those barriers and drive new plan formation would be incredibly positive. Again, this is an area where Empower is really focused. We have an automated microplan solution that we’re bringing to market where we think we can make the economics work and still deliver value for our customers.
One of the keys that I don’t think most people are aware of is that if people don’t have access to workplace savings, they just don’t save. It’s the power of inertia through payroll deduction, which is an incredibly powerful savings-building tool.
McKinsey: What gets you excited about your job?
Ed Murphy: Both as an industry and specifically as it would refer to Empower, I just feel like we’re in the first inning of a nine-inning game. What was created under the Employee Retirement Income Security Act [ERISA] decades ago was arguably one of the best public–private partnerships that’s ever come to market in our country. It’s been a long time in development, but today the defined-contribution system helps millions of Americans invest for their future. There’s a significant opportunity to expand it, to grow it, and to help people on a path where they’re not at risk of outliving their assets in retirement. I feel like we can be a difference maker there through the relationships we have with intermediaries and our work with other third parties. This whole idea of being able to be a provider of not only services but also advice and products is really what gets me fired up for the future. I think we’re just scratching the surface.