In an effort to help small businesses offer competitive retirement programs, Huntington National Bank and PAi Retirement Services recently announced a partnership through which they will build and launch the Huntington 401(k) Center for Business.
The center seeks to provide small and midsize businesses with better support for their retirement plans. Undergirding the solution is Huntington’s wealth management arm, the Huntington Private Bank, which serves as the 3(38) fiduciary adviser and is responsible for the investment management services. PAi, in turn, handles the plan administration via its CoPilot personalized recordkeeping services. Clients also gain access to PAi’s participant platform.
In a conversation with PLANADVISER about the new approach, recounted in the Q&A below, Frank Zugaro, head of the Huntington Private Bank’s retirement plan services business, emphasized the opportunity his firm sees in the small retirement plan marketplace. He says the challenges that have long prevented many small businesses from establishing and maximizing retirement savings programs can now be solved with a blend of technology and human support, and that the new fully bundled 401(k) service will position Huntington well in a rapidly evolving and increasingly competitive industry.
PLANADVISER: Can you speak about the motivation behind the development of the new partnership with PAi and the focus on smaller plans? Is this an underserved marketplace, from your perspective?
Zugaro: We do agree that the small-plan space is historically underserved. I will go so far as to say the marketplace is underserved even by some of the solutions that our competitors have brought forward. Some of them, frankly, are not where they need to be to truly get a small business, a startup plan, into a foundationally good spot with a healthy long-term growth trajectory.
We see parallels with the discount brokerage industry. There are solutions that are marketed as being very simple and straightforward, but on the other hand there are no resources to rely on if a problem emerges or something doesn’t go well.
Why we feel we can be different is because we have embraced our identity as a fiduciary plan adviser, and that’s a step that we took nearly 10 years ago at this point. Prior to that, we were doing recordkeeping and servicing plans, but we looked to the future and identified the fact that we wanted to focus on the fiduciary advising side as a means of sustainable success.
We have had success because we naturally have many customers of the bank who need these services. One statistic that we pay a lot of attention to is the fact that we are among the largest Small Business Administration-guaranteed loan issuers in the country. For six or seven years running we have achieved this distinction. So we understand what it means to be focused on helping entrepreneurs start a business and expand their business.
I like to say the new approach strives to be digitally powered, but with the support of real people. We are all about connecting technology with human support to bring better value.
PLANADVISER: Why did you choose to develop this partnership with PAi in particular compared with other possible firms?
Zugaro: In terms of partners for creating this solution, we looked seriously at four or five different providers. Our focus was on the technology side first, given how important the technology aspect is when it comes to building the kind of scale we are pursuing. We wanted modern technology that was easy to use for both the business owner and the participants in the plan. For example, we wanted to have a system where the employer can go online and set up their plan and automatically generate their plan document. We didn’t want the traditional conversion meetings and plan document review meetings. PAi is built that way.
The other important element is our relationship with Newport. You may recall that they have assumed the operation of our former retirement recordkeeping and administration business, with Huntington continuing to serve as plan adviser for its retirement plan services clients. You may also recall that Newport acquired PAi in November 2020. It was in the first weeks after that acquisition that Newport’s leadership called us and said we should think about creating a solution for small plans.
PLANADVISER: What do you see as the most critical service elements and deliverables for the small plan marketplace?
Zugaro: To begin with, ease of use is so critical, as is the ease of understanding the fees that are being paid. Some of our competitors in this market certainly have an easy-to-understand cost model—but the tradeoff is that it is all digital. It’s easy to come in with a very low price point when there are no service people involved.
From the adviser perspective, our fees are simple. We charge a base fee and an additional basis point fee based on the level of assets served. From a recordkeeping perspective, the solution has additional fees. Some are subscription- and some are asset-based, depending on the client relationship.
So it is not super difficult to understand how we are compensated. We also take pains to line-item our fees for that added degree of transparency. We know how important this is to our clients. In the end, our pricing might not be as simple as just saying it is X dollars per month for everything, but it is still very transparent.
PLANADVISER: How do you view the evolving regulatory environment in which today’s DC plan advisers and their partners must operate? Do you worry much about regulatory changes affecting your business, either on the part of federal or state regulators?
Zugaro: Of course; this is something we focus on. We all know we have the Securities and Exchange Commission focused on the adviser and brokerage industries, and the Department of Labor also plays a key role. And we can’t forget about the National Association of Insurance Commissioners.
As a general comment, I would point out that we are a bank, so we are governed primarily by the Office of the Comptroller of the Currency and not the SEC. That said, many of our people have and use their SEC licenses, so we have to stay on top of everything.
Ultimately, our view is that no matter the regulatory body, they should be able to come in and understand quickly and easily what our services are and what our costs are. This point of view is about managing litigation risk—both for our clients and for ourselves.
PLANADVISER: What can you tell us about your hopes and expectations for profitability on this side of the business?
Zugaro: We are actually very optimistic, and we believe that the profitability in this segment, with this service approach, could eventually exceed the profitability in our core business lines. That will obviously require significant volume, but we feel it is achievable.
We have structured this solution to sit between our more traditional adviser relationships and some of the self-serve options our competitors have put on the table. We are doing something in between and we have a lot of confidence that the marketplace will catch on.
Something else to add is that this is not merely about scale. We don’t want to take on plans that we are not going to be serving well. That is a huge reputational pride point for Huntington. We don’t want to throw something out there and say ‘good luck’ to our clients.
So, as we develop this business, we think we can provide additional value that will allow us to match and eventually exceed the profitability in our core businesses. It’s a very streamlined, digitally enabled solution.
PLANADVISER: What will be the principal challenges to this vision, in your estimation?
Zugaro: We hope one of the problems is that we grow fast and then face the normal growing pains associated with this business. We really are trying to work hard on staying ahead of the issue, and that is true across all the different parts of Huntington. We have to be ready to add resources, technology and people. That’s always a big risk, but we can manage it.
The other risk, as it always is, is legislative. We think there is a ton of legislation change coming. When something like that happens, and new opportunities emerge for our clients, communication and proactive engagement becomes so critical on our end. We have to be nimble and to be ready to communicate with as many of our business customers as possible, so that we don’t allow our competition to set the narrative and disrupt our relationships. We have to be faster to market with insights and solutions than our competitors.
The other risk, which is more unique to the small business space, is that we get this thing up and running, and win a lot of clients, but then we could see some of these small businesses either merge or be acquired or simply go out of business. For example, M&A transactions are about 10% year over year in our book. We can’t really control that, but what we can do is get in touch with those business customers who are experiencing big changes.
In the end, we want to create a full continuum of advisory services. If a company goes from a startup to a mega plan, we want to be ready to serve them throughout that growth cycle.