Bob Reynolds on Putnam Turnaround, Next Steps—Weekend Interview

Having the right people, the right products, the right compensation, and a focus on retirement income, made the difference, said Reynolds

In June 2008, Bob Reynolds, the former Fidelity Investments’ vice chairman and COO, joined Putnam Investments. As a rising star at Fidelity, his apogee was blunted by the Johnson family’s reluctance to give him the top spot, at least if you believed the nattering nabobs at the time.

Bob Reynolds of putnamHowever, his impact at Putnam was nearly immediate, and the turnaround he’s engineered at the storied asset management firm has burnished Reynolds’ star to the point where he has become a major spokesman for the investment community, recently weighing in on the national stage on both retirement planning and the federal debt.

For instance, on May 24, Reynolds spoke before the Boston Chamber of Commerce, saying that  proposals by Washington deficit hawks to cap or eliminate tax incentives that encourage Americans to save for retirement are “short-sighted” and could contribute to sending millions of workers into retirement with little or no savings.

In March, Reynolds called on Congress to create an optional national insurance charter and a new lifetime income security agency to administer an industry-funded, risk-based national insurance fund to protect current and future retirees, much like the FDIC’s bank deposit insurance.

Reynolds’ weltanschaung, however, is also, um, worldly.  “What happens around the world” affects advisors and clients in the U.S., he said in an interview in AdvisorOne’s New York office in late May, noting that half of all U.S. debt is held overseas, much of it in China. Moreover, he points out that a significant part of the companies in the S&P 500 derive their revenue from international operations. Highlights of the interview with Investment Advisor Group Editor-in-Chief Jamie Green follow.

Q. You’ve made quite an impact at Putnam. What have you accomplished?
A. The past three years have been an interesting time in business and the economy. When I joined Putnam there were internal issues compounded by the markets, but also opportunity. I always loved Putnam’s distribution model—90% of our products are advisor sold.

Putnam’s ownership also drew me to the firm—Power are long-term investors; they wanted a global asset management business as a growth engine for the company, and they said, “Let’s get it right.” [Canadian-based Power Corp. is the parent company of Power Financial, which is majority owned by Great-West Lifeco., which acquired Putnam Investments in 2007.]

First, I looked at what was working—made sure we had the right products. Thus the absolute return products, [a strategy] which was used institutionally, but we worked it out in '40 Act funds. Our fixed income offerings were good, but the equity side was not working--some of it was process, some people. So we added seven to eight portfolio managers and 30+ analysts, since not enough was being

done on fundamental analysis, though there was good fundamental value [in the company].

One of our key hires was Walter Donovan, who had worked with me at Fidelity, and had run money market, fixed income, high-yield and equities; he just had his two-year anniversary.

Q. You changed the compensation structure for your PMs?
A. I’m a big believer that compensation can be powerful. We’re a money management firm, so we have to perform. We instituted a compensation structure that reflects the goals of the firm

Q. What are your thoughts about advisors?
A. We want our advisor clients to have expectations of us; that we’ll perform. I thought our fixed income fees were too high, so we cut some by 60%. We only sell to advisors; they’re the future. The need and demand for advice will only grow from here, and it will be a great business for as long as we can see.

Trust is so huge in this business. I believe that if you say something, you do something.

Q. What’s next for Putnam?
A. We’re putting a huge focus on retirement income; that’s a huge battleground. How do you create a lifetime income stream? After all, what people want to replicate in retirement is their paycheck. We’re working on that both through products and technology, specifically through an online tool for investors that advisors can use to work with their clients. There’s a need for lifetime income for the next 30-40 years; we need to get people on track.

We’re also looking at alternatives, both in the form of ’40 Act funds and other [vehicles], meant to dampen volatility. We’re committing talent to international and global. You want to consistently perform well across all asset categories, because you never know what’s going to be in favor: when your time comes, you want to be ready.

Q. You’ve been outspoken about the federal deficit lately.
A. The deficit needs to be taken down; it’s a national security issue. And what’s happening around the world affects us here; 50% of U.S. debt is held overseas.

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