A CEO Talks AI, Retirement Planning, and Privates | At Barron's

Principal Financial Group: A Deep Dive with CEO Deanna Strabel

Key Concepts:

• AUM (Assets Under Management): The total market value of the financial assets that a financial institution manages on behalf of its clients.
• Fee Compression: The reduction in fees charged for financial services, often due to increased competition and demand for lower-cost options.
• Defined Benefit/Contribution Plans: Types of retirement plans offered by employers, differing in how benefits are calculated and funded.
• Private Assets: Investments in companies not publicly traded, such as private credit and infrastructure.
• Auto-Enroll/Escalate: Features in 401(k) plans that automatically enroll employees and increase contribution rates over time.
• Diversification: Spreading investments across different asset classes to reduce risk.
• Proxy Advisory Firms: Companies that provide voting recommendations to institutional investors on company governance matters.

I. Company Overview & Business Lines

Principal Financial Group is a 145-year-old financial services company headquartered in Des Moines, Iowa, but with a significant global presence. While rooted in the US, the company now has more customers and employees internationally. Principal operates across four primary business lines: Asset Management, Retirement, Benefits & Protection (primarily group employee benefits), and International. The company currently employs approximately 20,000 people and serves over 70 million customers in 80 countries. A key point emphasized by CEO Deanna Strabel is the benefit of diversification across these businesses, allowing for more consistent results even when individual segments experience varying growth rates.

II. Strategic Vision & Execution (Since January 2025)

Deanna Strabel, CEO since January 2025, highlighted a 35-year tenure with the company, allowing for a seamless transition into the leadership role. Crucially, the core strategy was already refined and presented to investors in the fourth quarter of the previous year. This enabled Strabel to focus on execution rather than strategy development. Her vision centers on driving strong growth, meeting customer needs, and supporting employees. She emphasized building upon a strong foundation laid by previous CEOs.

III. Current Business Opportunities & Challenges

Strabel identified two primary challenges facing Principal:

1. Fee Compression: Both the US Retirement and Asset Management businesses are experiencing pressure from customers seeking lower-cost options. Overcoming this requires driving customer growth to offset the reduced fees.
2. Generational Differences & Financial Literacy: Principal’s customer base spans six generations, each with distinct approaches to retirement planning and investing. A key challenge is simplifying solutions, making them accessible, and meeting customers where they are to promote financial security. The need to increase financial literacy, particularly regarding complex products, was underscored.

Despite these challenges, Strabel reiterated the company’s strong positioning across all three core businesses and the benefits of diversification.

IV. Asset Management Deep Dive

Principal’s Asset Management business currently manages nearly $800 billion in AUM. A significant portion (300-400 billion) supports retirement assets, including defined benefit and defined contribution plans offered through the workplace. Another substantial portion supports the company’s insurance products (life, disability, annuities), as asset management originally developed to support these insurance obligations. Approximately 25-30 years ago, Principal expanded its asset management services to third-party institutional clients globally.

Key areas of focus within Asset Management include:

• Real Estate: A historical strength.
• Private Assets: Expanding into private credit and infrastructure, targeting institutional clients but with potential future expansion into retirement offerings.
• International Equity & High Yield: Assets designed to generate income for both institutional and individual investors.

V. Private Assets in Retirement Plans: A Nuanced Perspective

Strabel addressed the growing discussion around including private assets in 401(k) plans. While acknowledging the potential benefits – particularly the declining number of publicly traded companies – she cautioned that widespread adoption will take time. Currently, most of Principal’s 40,000 employer clients are not requesting the addition of private assets to their investment lineups, and a majority of their customers lack understanding of these asset classes.

She emphasized the importance of risk tolerance, noting that the majority of 401(k) participants rely on these plans as their sole retirement savings vehicle and require more conservative investment options. Advice will be critical in navigating this space, and a differentiated approach is needed for participants where the 401(k) is just one component of a broader retirement strategy.

VI. External Factors & Regulatory Landscape

• Proxy Advisory Firms (Glass Lewis & ISS): Principal monitors recommendations from these firms, recognizing their influence on shareholder voting. However, Strabel emphasized that investors are increasingly making their own decisions, and Principal’s asset management arm maintains its own independent voting perspective.
• Quarterly Reporting: While acknowledging the time commitment involved, Strabel believes quarterly reporting provides valuable transparency and communication with shareholders, citing the benefits experienced since the company went public in 2001 (notably, being the first company to IPO post 9/11). She noted that even if reporting frequency were reduced, some level of regular communication would likely remain necessary.
• Regulatory Environment (Retirement): Strabel expressed optimism regarding the bipartisan support for policies encouraging retirement savings, such as tax incentives and auto-enrollment/escalation features. Principal actively engages with the administration to support these initiatives.

VII. AI Integration & Future Growth

Strabel identified Artificial Intelligence (AI) as a transformative technology with the potential to impact every role within the company. Principal is taking a proactive approach by:

• Employee Education: Investing in a comprehensive AI training program for all 20,000 employees, launching in 2025.
• Process Optimization: Applying AI to improve efficiency in areas like IT coding and customer engagement.
• Automation of Manual Tasks: Automating 90% of work in certain roles, allowing employees to transition to more value-added activities.

Strabel emphasized that AI is primarily being used to augment human capabilities, not replace employees, and that the company is experiencing growth, mitigating concerns about job displacement.

VIII. Stock Performance & Shareholder Value

Strabel acknowledged the stock’s relatively flat performance over the past three years, attributing it to factors such as the timing of divestitures and changes in capital deployment strategy. She expressed confidence in the company’s ability to deliver strong returns and dividends moving forward, highlighting recent progress in translating performance into shareholder rewards.

IX. CEO’s Personal Interests & Company Culture

Deanna Strabel enjoys travel, wine, and reading fiction to unwind. She emphasized her long-term commitment to Principal, having held 15 different roles within the company, and expressed pride in the company’s culture and its mission of helping customers achieve financial security.

Conclusion:

Principal Financial Group, under the leadership of Deanna Strabel, is focused on executing a well-defined strategy centered on diversification, customer needs, and employee empowerment. The company faces challenges related to fee compression and generational differences, but is actively investing in areas like asset management (particularly private assets) and AI to drive future growth and deliver value to shareholders. A key takeaway is the emphasis on a proactive, long-term approach to navigating a dynamic financial landscape.