Vanguard Group moves record keeping to Infosys

Vanguard Group Inc.'s move to transfer operations of its record-keeping business to India-based technology firm Infosys should help the firm achieve two long-standing goals: drive down costs and ramp up its technology capabilities.

And if the partnership proves successful, some industry observers believe it could set a new precedent for the record-keeping industry.

Through this partnership announced on July 14, Infosys will handle the software platforms, administration and associated processes of Vanguard's record-keeping business, which had more than $560 billion in assets under administration as of June 30.

In addition to assuming the day-to-day operations of the record-keeper business, Infosys will also lift out 1,300 record-keeping employees from Vanguard and place them in comparable positions within Infosys.

Among these Vanguard Group employees migrating to Infosys is the firm's institutional investor group head, Martha King, who will be chief client officer of Infosys and head the company's new Mid-Atlantic Retirement Services Center of Excellence.

Ms. King said in an emailed statement that "Vanguard clients will be the direct beneficiary of ... Infosys's world-class technical expertise and scale." The transition is set to occur Oct. 12.

"Now is the time for large-scale innovation in the defined contribution business," said Infosys President Mohit Joshi in a separate statement. "In particular, there is a critical need for more efficient and automated systems, and to inspire better investor behaviors through richer data."

Mr. Joshi added that Malvern, Pa.-based Vanguard and Infosys "will deliver the industry's first fully cloud-based platform, provide sponsors with streamlined transaction processing, AI-driven insights, and anywhere/anytime/any device secure access to information."

Despite the transferring of operations and staff to Infosys, Vanguard spokeswoman Emily M. Farrell clarified in an email that "this is and will continue to be Vanguard's record-keeping business," and that "very distinct client service functions and responsibilities will reside solely in Vanguard."

Specifically, Vanguard's relationship management teams and strategic plan design and communication staff will continue to service the firm's plan sponsor clients through its institutional investor group, now led by John James.

Vanguard will also continue to oversee the investment management and guidance services for both sponsors and participants.

In addition, having Infosys handle the software platforms, administration and associated processes of the record-keeping business will enable Vanguard to further invest in a redesigned participant website, integrated advice and intuitive technologies, Vanguard said in the news release announcing the deal.

For many industry observers, this partnership makes sense. According to Lew Minsky, president and CEO of the Washington-based Defined Contribution Institutional Investment Association, teaming with Infosys allows Vanguard to explore new technologies such as artificial intelligence and blockchain and "focus on their core strengths and bring in a partner that leads on digital and technical innovation."

"I'm sure the two organizations will discover true synergy from the partnership," Mr. Minsky added.

Partnering with Infosys also solves a problem that Vanguard has faced in recent years. Although Vanguard has invested heavily in its technology capabilities, the firm has still struggled with technical difficulties, ranging from overwhelmed call services to glitches in online connectivity to plan participants receiving incorrect account information. Some of these problems have been the result of the firm lowering costs while its business experiences rapid growth.

"Vanguard has had a myriad of technology issues across the complex," said Daniel P. Wiener, editor of the Potomac, Md.-based newsletter Independent Adviser for Vanguard Investors, which has no affiliation with the company. "Outsourcing to an outfit that's all about technology makes a lot of sense. It allows them to get that stone off their back."

Even Ms. King admitted that working with Infosys will solve Vanguard's problem of working with outdated technology. In a video announcing the partnership, she said that Vanguard has managed its business "using mainframe system platforms that run software that's decades old."

The other big advantage that Vanguard gains from this deal with Infosys? It allows them to cut costs without compromising on service.

"Costs are always going to be a competitive issue for Vanguard," Mr. Wiener said. "They're the low-cost leader."

An attorney specializing in advising plan sponsors on retirement issues, who asked not to be named, speculated about whether this move was also done so that Vanguard could focus on its investment management business.

"For Vanguard, it makes perfect sense because where do they make their money? It's not from record keeping; it's from funds and managed accounts," he said. "Vanguard has an incredible franchise. They're clearly focused on investments."

He added: "Given that landscape, outsourcing a high-cost business with low margins makes sense."

Since a partnership of this kind between a DC plan administrator and technology firm is new to the record-keeping industry, many are waiting to see if it's a viable option to service DC plans. If it is, industry observers believe that this could lead to more record keepers engaging in similar partnerships with technology specialists.

"The industry is certainly watching, with Vanguard being the first to utilize this approach," said Peter Nadeau, a Windsor, Conn.-based partner and senior consultant at Fiduciary Investment Advisors LLC. "All eyes are on them."

Mr. Nadeau, who noted that FIA has been in discussions with Vanguard and other record keepers as to what level of value this partnership is going to deliver, added that if Vanguard and Infosys can smoothly and effectively roll out the service, then the results to their business "would be transformational."

DCIIA's Mr. Minsky noted that Vanguard partnering with a tech specialist is part of a broader trend of record keepers looking to modernize their systems and structures through technology, and could lead the way toward similar partnerships between plan administrators and technology specialists.

"I'm sure we'll see some existing organizations that choose to invest (in technology) internally, some that will make partnerships like this and some new entrants to the marketplace," Mr. Minsky said. "The net result will be the industry will continue to evolve and plan sponsors and plan participants will get better services."

And these better services are being demanded by plan sponsors that are relaying to record keepers this need from their plan participants.

"Companies with big 401(k) plans demand more and better service from their record keepers," Mr. Wiener said. "Ultimately, the employees are in charge. (Record keepers) have to do their best possible job for the employees. And if they don't, they'll be held to account."