Data and Research

Advisers Rethinking Investment Product Use

In light of heightened regulatory pressure, advisers are reevaluating portfolio management strategies to generate sufficient retirement income in a low-interest-rate and cost-sensitive environment.

By Javier Simon editors@strategic-i.com | December 22, 2016

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 November.”

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 the month.

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.