Products July 31, 2015

Tech Firm Says Calculators Can Improve Savings

One key to better engagement in the retirement savings effort is improving knowledge about how assets and liabilities accumulate, according to financial technology provider SmartAsset.
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A new retirement income calculator from SmartAsset considers more than 80 variables while crunching retirement readiness assessments for individual savers.

Despite the back-end sophistication, the free tool is meant to be intuitive and easy to use, according to AJ Smith, managing editor and vice president with SmartAsset. Discussing the tool with PLANSPONSOR, she noted the user interface is controlled mainly through digital slide rules and a step-by-step information entry process that gathers key data points such as age, location, projected Social Security claiming age, annual income, and anticipated retirement expenses.

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Smith says perhaps the most compelling feature of the new calculator is that it allows individual retirement savers to “play around with their savings information to see how a small change today can make a big difference years or decades down the line.”

“Savers can use the tool to see, in real time, how things like increasing or decreasing the savings rate or pushing back the Social Security claiming date will impact overall retirement readiness,” Smith said. “It’s very compelling when they can see the projected income moving up and down so dramatically, simply based on small changes to the savings rate today.”

When first accessing the tool, savers are guided step-by-step through an information entry process. The tool asks about balances across pensions, 401(k) plans, individual retirement accounts, and any other potential source of retirement income.

“We’ve found that for plan sponsors and advisers, this type of tool can be a really powerful conversation starter,” Smith said. “It helps individuals start to think about the retirement topic and start creating a plan for moving forward. It helps people be very honest about where they are right now, and it also helps them create goals.”

She feels advisers and sponsors can present the tool to plan participants with the messaging, “go ahead and play around.” Some participants will be pleasantly surprised by their retirement readiness reading, but more often than not, participants will see they’re falling short.  

“You may have a participant that has the goal of retiring as soon as they hit age 62,” Smith suggested as an example. “When they do the math with our tool they might see this isn’t quite going to be possible. They can then work with our calculator to see specifically what changes need to be made today to bridge the gap and make that initial goal possible.”

The free tool is available online here.

Data & Research July 31, 2015

Alternatives, ESG Continue Gaining Traction

Asset managers and consultants alike continue to position their businesses for a rise in ESG investing.
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Alternative investments come under Cerulli’s scrutiny in the July 2015 issue of “The Cerulli Edge -U.S. Monthly Product Trends Edition,” which takes a look at alternative investing in the form of environmental, social, and governance (ESG) considerations.

As institutions pursue alternative strategies for both diversification as well as potential return, ESG investing continues to gain traction even while retirement plans grapple with how to incorporate ESG investing into their lineups when advisory opinions from the Department of Labor (DOL) can make it difficult to do so. 

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The United Nations Principles for Responsible Investment (UNPRI) remains a catalyst for the ESG/responsible investing movement, according to Cerulli’s report. Asset managers, consultants and asset owners alike use these principles as a starting point when beginning to consider factors in an ESG/socially responsible context. As of April, signatory assets under management totaled more than $59 trillion, with more than 1,380 signatories.

Although the marketplace owes a great deal of credit to the UNPRI for setting standards, it is not without some shortcomings. In one research discussion with a consultant who specializes in ESG-oriented investing, Cerulli learned that the reporting requirements for asset managers under the UNPRI are largely process-oriented. This can potentially lead to signatories looking to only “check the boxes” and claim they are following the UN’s guidelines in order to boost their ESG credentials.

As ESG investing gains an increasing share of media attention, new firms have entered the market looking to distinguish themselves based on their ability to identify possible ESG investing opportunities and truly abide by ESG-oriented practices, according to Cerulli’s report, which cites a firm that follows a systematic, intentional approach when choosing investments. As well as its investment management capabilities, it produces thought leadership through weekly/quarterly insights. Cerulli notes the importance of managers following a transparent process that details how they are integrating ESG factors in their investment process.

Other highlights of the research are:

  • Most exchange-traded fund (ETF) sponsors (70%) believe the alternative space shows unmet demand for ETF products.
  • Sponsors are optimistic about inflows into the alternative asset class: 50% of sponsors believe alternatives will experience inflows over next 12 months in the institutional channel.
  • Mutual funds ended the first half of 2015 with assets totaling $12.5 trillion, up only 2.7% from the December 2014.
  • ETF assets declined for the first time since January, falling by 1.7% in June.
More information about the July 2015 issue of “The Cerulli Edge -U.S. Monthly Product Trends Edition,” including how to purchase, is on Cerulli’s website.

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