Major shifts in the market and regulatory environment are
causing retirement plan advisers to rethink investment product use, according
to a new report by research firm Cerulli Associates.
The firm found that in the next two years, advisers across
channels expect to reduce their use of variable annuities
by 9.1%, while increasing their use of insurance products like fixed annuities by
12.4%. These developments come ahead of the April implementation of the Department
of Labor (DOL)’s Conflict of Interest rule.
The firm also noted that “Despite tailwinds from strong U.S.
equity market performance, actively managed assets fell 0.4% in November,
ending the month just below $9.6 trillion. Meanwhile, passive assets shot up
3.1%, to $5.3 trillion over that time period. Flows continue to be a
contributor to growth, with passive funds accumulating $71.3 billion in
Cerulli also found that November marked the sixth-straight
month that mutual funds collectively experienced outflows, losing $47.9
billion. However, assets still managed 0.4% growth reaching $12.4 trillion during
Exchange-traded fund (ETF) assets saw a 3.4% jump from the
previous month climbing to $2.45 trillion. Cerulli credits this hike to positive
U.S. equity market performance coupled with flows of $52.3 billion--the highest
monthly flow total so far this year.
According to Cerulli’s research, “Inflation-protected bond
funds gathered the fourth-most flows of any Morningstar category in November,
amassing more than $1 billion. The case for rising inflation was bolstered by
investors' anticipating higher government spending and lower taxes under a
Trump administration, coupled with rising oil prices.”
The firm also notes that large adviser practices are increasingly
leveraging home-office research in their portfolio construction process in
order to increase investment management efficiency. Mega teams with at least
$500 million in assets under management (AUM) use their own models 47% of the
time, but they are also more likely than their smaller counterparts to use a
broker/dealer's (B/D)'s or custodian's suggested models as a starting point.
These findings are from “The
Cerulli Edge - U.S. Monthly Product Trends Edition.” Information of
obtaining a copy can be found here.