Why a regional bank feels well positioned to succeed in small projects

Art by Katherine Streeter

In an effort to help small businesses offer competitive retirement programs, National Bank Huntington and PAi Retirement Services recently announced a partnership through which they will build and launch the Huntington 401(k) Center for Business.

The center aims to offer small and medium-sized businesses better support for their retirement plans. The solution relies on Huntington’s wealth management arm, Huntington Private Bank, which acts as fiduciary advisor 3(38) and is responsible for investment management services. PAi, in turn, handles plan administration through its custom CoPilot record keeping services. Clients also have access to PAi’s Participant Platform.

In a conversation with PLANADVISER about the new approach, chronicled in the Q&A below, Frank Zugaro, head of Huntington Private Bank’s pension services business, highlighted the opportunity his firm sees in the market for small pension plans. He says challenges that have long kept many small businesses from establishing and maximizing retirement savings programs can now be solved through a mix of technology and human support, and that the new 401(k) fully integrated will position Huntington well in a rapidly changing environment. and an increasingly competitive industry.

PLANADVISER: Can you tell us about the motivation behind developing the new partnership with PAi and the focus on smaller plans? Is this an underserved market, from your perspective?

Zugarō: We agree that the small plane space is historically underserved. I would go so far as to say that the market is underserved even by some of the solutions offered by our competitors. Some of them, frankly, aren’t where they need to be to really put a small business, a start-up plan, in a fundamentally good place 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 fall back on if a problem arises or something goes wrong.

The reason we think we can be different is because we’ve embraced our identity as a fiduciary plan advisor, and that’s a step we took almost 10 years ago at this point. . Previously, we were making record keeping and service plans, but we looked to the future and identified the fact that we wanted to focus on the fiduciary side of the board as a means to sustainable success.

We have had success because naturally we have many bank customers who need these services. One statistic we pay close attention to is the fact that we are among the largest issuers of Small Business Administration-backed loans in the nation. For six or seven consecutive years, we have obtained this distinction. So we understand what it means to focus on helping entrepreneurs start a business and grow their business.

I like to say that the new approach strives to be powered by digital, but with the support of real people. We want to combine technology with human support to provide better value.

PLANADVISER: Why did you choose to develop this partnership with PAi in particular compared to other possible firms?

Zugarō: In terms of partners to create this solution, we looked seriously at four or five different vendors. We focused on the technology aspect first, given the importance of the technology aspect when it comes to building the type of scale we are pursuing. We wanted modern technology that was easy to use for both the business owner and the plan participants. 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 traditional conversion meetings and planning document review meetings. PAi is built this way.

The other important element is our relationship with Newport. You may recall that they took over the operation of our former pension recordkeeping and administration business, with Huntington continuing to act as a plan advisor for its pension services clients. You may also recall that Newport acquired PAi in November 2020. It was in the first few weeks after that acquisition that Newport management called us and said we should think about creating a solution for small projects.

PLANADVISER: What do you see as the most critical service elements and deliverables for the small package market?

Zugarō: For starters, ease of use is so critical, as is ease of understanding the fees that are paid. Some of our competitors in this market certainly have an easy-to-understand cost model, but the trade-off is that it’s all digital. It is easy to offer a very low price when there are no service personnel involved.

From an advisor’s perspective, our fees are simple. We charge a base fee and an additional fee in basis points based on the level of assets served. From a record keeping perspective, the solution comes with additional costs. Some are subscription-based and some are asset-based, depending on the customer relationship.

It is therefore not super difficult to understand how we are compensated. We also make an effort to itemize our fees for that extra degree of transparency. We know how important this is for our customers. At the end of the day, our pricing might not be as simple as saying it’s X dollars a month for everything, but it’s still very transparent.

PLANADVISER: How do you see the changing regulatory environment in which today’s DC plan advisors and their partners must operate? Do you worry a lot about regulatory changes affecting your business, whether from federal or state regulators?

Zugarō: Sure; it’s something we focus on. We all know that the Securities and Exchange Commission focuses on the adviser and brokerage industries, and the Department of Labor also plays a key role. And we can’t forget the National Association of Insurance Commissioners.

Generally speaking, I would point out that we are a bank, so we are primarily regulated by the Office of the Comptroller of the Currency and not by the SEC. That said, many of our employees have and use their SEC licenses, so we need to stay on top of everything.

Ultimately, we believe that regardless of the regulator, they should be able to step in and quickly and easily understand what our services are and what our costs are. This view is about managing the risk of litigation, 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?

Zugarō: We are in fact very optimistic and we believe that the profitability of this segment, with this service approach, could eventually exceed the profitability of our core businesses. This will obviously require a large volume, but we believe it is doable.

We’ve structured this solution to sit between our more traditional consulting relationships and some of the self-service options our competitors have put on the table. We are doing something in between and we are convinced that the market will be able to adapt.

Another thing to add is that it’s not just about scale. We do not want to undertake plans that we are not going to serve well. It’s a huge pride of reputation for Huntington. We don’t want to throw something out there and say “good luck” to our customers.

So as we grow this business, we believe we can add additional value that will allow us to match and possibly exceed the profitability of our core businesses. This is a very simplified numerical solution.

PLANADVISER: What do you think will be the main challenges of this vision?

Zugarō: Hopefully one of the issues is that we are growing rapidly and then dealing with the normal growing pains associated with this business. We really try to work hard to stay ahead of the problem, and that’s true in all different parts of Huntington. We must be ready to add resources, technology and people. It’s always a big risk, but we can manage it.

The other risk, as always, is legislative. We think there are a ton of legislative changes to come. When something like this happens and new opportunities emerge for our clients, communication and proactive engagement become so critical on our end. We need to be nimble and ready to communicate with as many of our business customers as possible, so that we don’t let our competitors set the narrative and disrupt our relationships. We need to be faster to market with ideas and solutions than our competitors.

The other risk, which is more unique to the small business space, is that we put this thing in place and we gain a lot of customers, but then we might see some of these small businesses merge or be acquired or just disappear work. For example, M&A deals are about 10% year-over-year in our book. We can’t really control that, but what we can do is connect with business customers who are going through big changes.

Ultimately, we want to create a full continuum of consulting services. If a company grows from a startup to a mega plan, we want to be ready to serve them through that growth cycle.

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