Fidelity Investments’ Canadian institutional unit is getting out of the defined contribution (DC) recordkeeping business and transitioning its clients to Great-West Life Assurance Company, subject to regulatory approval.
The move only affects Fidelity’s Canadian DC recordkeeping unit and will have no impact on its Canadian mutual fund, corporate pension businesses or its DC recordkeeping business in the U.S. The transition is expected to be completed by June 2009.
According to Michael Barnett, executive vice-president and head of Fidelity’s institutional business in Canada, the decision to move out of DC recordkeeping came down to a matter of scale.
“We concluded that you absolutely need scale to be successful in the recordkeeping business in Canada,” he says. “If you don’t have that scale it’s going to be very challenging.”
Barnett explains that a comprehensive review of Fidelity’s DC recordkeeping unit six months ago revealed a lack of scale, with its market share topped-out at 2%. The decision was then made to exit the recordkeeping business and focus on the company’s strengths, namely investment management.
Barnett says the company would have liked to leverage infrastructure from its dominant U.S. recordkeeping operations, but was thwarted by the regulatory environment.
He says Fidelity sees Great-West Life as a market leader with experience in these transitions, a sentiment shared by Bill Kyle, senior vice-president of Great-West Life Group Retirement Services.
“We’ve had a tremendous amount of experience in this over the last eight years,” says Kyle. “We’ve done nine similar transactions involving 7,300 pension plans, 860,000 plan members, and more than $14 billion in assets.”
Great-West Life currently provides administrative services for 30% of the capital accumulation plans in Canada, and Fidelity’s business will add a further 2%.
The deal is indicative of a larger trend of consolidation in the industry, says Kyle. He explains that over the last 10 years, roughly 20 Canadian service providers have been consolidated down to four, which now control 85% of the recordkeeping market. “That certainly points out that in order to be competitive in this business you need scale.”
According to Barnett, the decision has nothing to do with the current market volatility, saying it’s business as usual for Fidelity, regardless of the environment.
The two companies will be busy over the next eight months as they transition the records of Fidelity’s $2.2 billion in assets under management, with the goal of making it as seamless as possible for plan members.
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