In a move to strengthen the services it provides to sponsors of defined contribution plans such as 401(k) plans, Nationwide Financial Services Inc. in April purchased a company that provides third-party money management services to plan participants.The company, Registered Investment Advisors Services Inc. (RIA), which is based in Dallas, has been providing investment management services since June 2002 to plans that are part of Nationwide's Best of America Group Pension Series programs. Based on that experience, Nationwide executives say tighter integration with RIA Services will provide plan participants with expert advice on how to manage their retirement funds, and it will enable Nationwide to expand these services to other plans.
The deal also provides Nationwide with technology that manages trades placed by money managers and a data management warehouse that supports plan enrollment and presentations to plan managers.
Greater control
"One reason why we decided to acquire RIA is that it gives us greater control over the services they provide to us-and to provide plan sponsors with additional investment styles from professional money managers," says Steve Grabeless, vice president of business development for private sector accounts at Nationwide, Columbus, Ohio.
The acquisition also addresses the financial guidance that many plan participants say traditional plans are lacking. In fact, a study last year by Nationwide's Retirement Education Institute found that more than 70% of employees queried indicated that selecting appropriate financial products and services is complicated.
"Sponsors are struggling to provide the right education and tools, so we can provide that guidance and assistance for them," Grabeless says.
Currently, through their exclusive arrangement, Nationwide facilitates RIA's offerings to 2,000 plans sponsors with more than 40,000 participants and $1 billion in assets.
Overall, Nationwide's 401(k) business includes about 25,000 plans with 1.2 million participants and about $22 billion in assets.
The process
RIA Services provides the interface for money managers to get access to plan participants' records outside of Nationwide's record-keeping system. Nationwide sends these records to RIA each day, and the updated records are sent back to Nationwide at the end of the day.
That process will remain the same in the short term. RIA will remain headquartered in Dallas, and its programmers will maintain the trading platform and data warehouse.
RIA uses third-party administrators who work with money managers and plan sponsors to make the investment changes requested by plan participants.
Money management firms that are participating in this arrangement include: Clarke Lanzen Skalla Investment Firm Inc., Omaha, Neb.; Flexible Plan Investments Ltd., Bloomfield Hills, Mich.; Meeder Financial, Dublin, Ohio; and Schield Management Co., Denver.
Under RIA's program, after plan sponsors select a money management firm, individuals who opt for the money management services must pay an undisclosed fee. Grabeless estimates that among the 401(k) plans that currently offer RIA's services, 43% of plan participants use money managers.
Nationwide executives evaluated the demand for these services among current plan sponsors and determined that it could expand the offering by purchasing RIA.
More service available
"We saw limitations in the marketplace imposed on a company as small as RIA and believe we can leverage our brand relationships and open the door to plans that RIA could not reach, especially those with outside intermediaries," Grabeless explains.
The integration of RIA Services also will enable Nationwide to develop more customized defined contribution plans-including a wide variety of investment styles for participants to choose from-for smaller plans.
"There are still very few firms that have a trading platform like RIA's to manage money for participants, regardless of the account size," Grabeless says.
"We saw the job that RIA was doing, and how plan participants were embracing it, and determined that we wanted to make these services available to more of our plans."
