Upromise hit with high-level shake-up

In a move that has stunned the Section 529 college savings plan business, James Fadule has left his position as president of industry powerhouse Upromise Investments Inc. Mark Chapleau, formerly Upromise's general counsel, will now head the company, which is based in Newton, Mass. The circumstances and reasons for Mr. Fadule's departure earlier this month had not been disclosed at press time. Bernard McNamara, Upromise's widely respected senior vice president of marketing and client management, also has exited the company.
"I am not going to talk about the circumstances of [Mr. Fadule's] departure," said Mr. Chapleau. In a statement, he praised Mr. McNamara's "significant contributions to the company's success." One of the most prominent executives in the industry, Mr. Fadule helped found the company in 2001, and was the driving force behind its meteoric rise as a 529 leader. With 17 direct and adviser-sold programs in 11 states, Upromise administers more 529 programs than any other company. It manages $18.2 billion in assets, second only to Los Angeles-based American Funds Investment Co., which manages $25 billion for the Richmond-based Virginia College Savings Plan. "This is a very significant event for Upromise," said Peter Mazareas, vice chairman of the Washington-based College Savings Foundation. "Jim was the visionary behind developing Upromise's business plan and cultivating and winning state contracts. His absence leaves a knowledge vacuum at the company," said Mr. Mazareus, who is also chief executive of Nahant, Mass.-based Strategic Advancement Group Inc.

MANAGEMENT SHAKE-UP

Industry speculation on the management shake-up focuses on SLM Corp., which bought Upromise Inc., the reward program company that is the parent of Upromise Investments, for an undisclosed sum in 2006. Reston, Va.-based SLM Corp. is better known as Sallie Mae, the student loan company. Some observers thought Mr. Fadule may have clashed with Sallie Mae executives over strategy for the 529 business. Others believed Mr. Fadule may have been concerned about the financial health of Sallie Mae, which reported an unexpected fourth-quarter loss of $1.64 billion and is trying to find a merger partner in the midst of the credit crunch, which has hurt its student loan business. Paul Mayer, senior vice president of corporate development for Sallie Mae, who oversees Upromise, did not return calls requesting a comment, nor did Mr. Fadule.
However, Mr. Chapleau said Sallie Mae executives were "very supportive" of the new management team, which includes Jeff Howkins, chief administrative officer; Peter Angus, chief operating officer, and Pat McKeon, chief compliance officer. There will be "no change in strategy" at Upromise, according to Mr. Chapleau. "We want to keep growing market share," he said. The company's latest conquest came in December, when it was selected by the Indiana Education Savings Authority in Indianapolis to succeed New York-based JPMorgan Funds Management Inc. as manager of the CollegeChoice 529 Investment Plan, which has more than $700 million in assets. But Upromise has also lost out on some large contracts over the last few years, most notably in California, Michigan and Illinois. Some in the industry have speculated that not winning those contracts may have contributed to Mr. Fadule's exit. Others noted his famously forceful personality, and wonder if it may have caused friction within the boardroom. "He could be a bull in a china shop," said one former colleague. No one, however, questioned Mr. Fadule's knowledge of and enthusiasm for the business, and he is widely expected to re-emerge, perhaps with Mr. McNamara as a partner. "He was a visionary and truly committed to the business," said prominent industry consultant Andrea Feirstein, managing member of New York-based AKF Consulting LLC. "I hope he resurfaces." Upromise's partners appear to be taking Mr. Fadule's departure in stride. A critical show of support for the company's new management team came from Upromise's powerful investment management partner, The Vanguard Group Inc. of Mal-vern, Pa.
After visiting with Mr. Chapleau and his colleagues in Newton this month, John Heywood, a Vanguard principal who heads the education-markets group that oversees the company's 529 business, said that he was assured that Upromise remains committed to the business in "a client-focused fashion." Mr. Heywood praised Mr. Fadule as "a passionate person who believed in serving the business well." But he also said that Upromise "was not just Jim" and called Mr. Fadule's successors "a strong team of professionals." "The fact that John is comfortable with [the new team] says a lot," said Kate Marshall, Carson City-based state treasurer of Nevada, adding that she was "fine" with Mr. Fadule's departure. With approximately $4.5 billion in 529 assets at the end of 2007, Nevada is the second largest state using Upromise as a program manager and Vanguard as an investment manager for its 529 plans, behind only New York, with nearly $8 billion in assets at the end of the year. Iowa state treasurer Mike Fitzgerald, however, said he was "sorry to hear" that Mr. Fadule had left Upromise. "He did a great job and we had a lot of confidence in him." Iowa, which also works with Upromise and Vanguard, had $2.1 billion in its 529 plans at the end of last year. Industry analysts and competitors also praised Mr. Fadule, but did not feel his departure would harm Upromise's long-term prospects. "Anytime someone with [Mr. Fadule's] capability leaves, there's always a transition challenge for any company," said Adam Bashe, managing director of FutureTrust, a Philadelphia-based rewards company that also works with state 529 plans. "But Upromise is a good company and a good partner. I expect they will keep their eye on the ball and that things will continue to move forward."

REMAINING STRONG

Similar comments were made by Brian Boswell, research director for Boston-based Financial Research Corp. "Jim will be missed but I don't think there will be a negative impact on business," he said. "Upromise has excellent technology and I can't imagine why they wouldn't have continued success with the model that they've built." Raquel "Rocky" Granahan, vice president and director of 529 college savings plans for New York-based OppenheimerFunds Inc., one of Upromise's most formidable competitors, said she expects Upromise to continue to be "solid competition." In fact, said Mr. Chapleau, Upromise's "key differentiators" in the 529 market will remain its low-cost plans with Vanguard, customized technology platforms, and rewards programs. Lower fees will continue to be a trend in the competitive 529 field, he predicted. Mr. Chapleau added that he also foresaw "some people getting out of the business" as 529 contracts came up for renewal. By contrast, he said, Upromise was devoted to college savings and the 529 business. E-mail Charles Paikert at cpaikert@investmentnews.com.