The Markets July 30, 2008

401(k) Participants Pull Out from Equities

401(k) participants continued to flee equity holdings in June 2008, according to Hewitt’s 401(k) Index.
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While individual investors might have stayed strong in equity holdings (see Individual Investors Remain Optimistic about Equities), 401(k) participants do not demonstrate as much equity stamina.

For the month of June, $158 million moved from equity to fixed-income funds, mainly from international and large U.S. equity into GIC/stable value and company stock, Hewitt data show. As of the end of the month, 23.83% of participants’ 401(k) assets were allocated to GIC/Stable Value funds and 18.79% of assets were held in Large US Equity offerings.

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Lifestyle/Pre-mix funds gained nearly 21% of overall contributions in June, followed by Large US Equity funds attracting 18.22%, and GIC/Stable Value winning 16.23% of overall contributions. Participant-only contributions followed suit: Lifestyle/Pre-mix (21.19%), Large US Equity (19.46%), and GIC/Stable Value (17.15%).

The monthly activity continues the trend of 401(k) participants moving away from equity investments during the first half of 2008, according to Hewitt. A sum of $3 billion (2.6% of total assets) shifted out of equity funds on a net basis during this period.

The vast majority of outflows occurred in the first quarter, with $2.8 billion transferring from equities to fixed-income investments. The outflows were only marginal during the second quarter ($208 million).

Net transfers were fixed-income-oriented during five out of six months in the first half of the year, and participants shifted monies from equity to fixed income funds during 64% of the days.

Transfer Activity in First Half of “08

Large U.S. equity funds saw the largest net outflows during the first half of 2008, with a total of $910 million transferring out of these funds, according to the Hewitt 401(k) Index. The majority of the outflows ($879 million) occurred during the first quarter.

At the same time, $798 million was transferred out of international funds on a net basis, again mostly during the first quarter ($756 million). Meanwhile, the fixed-income asset classes received nearly all of the net transfers with GIC/stable value funds capturing $2.1 billion of participants’ transferred assets. Bond and money market funds received $833 million and $245 million of the net transfers, respectively.

Due to both market weakness and participant transfers, according to Hewitt, the overall equity allocation in 401(k) index was 62.5% at the end of June, down from 66.9% at the end of last year.

The level of transfer activity was normal throughout the first half of the year, with the exception of higher transfer levels in January.

The Hewitt 401(k) Index for June is here.

In Practice July 30, 2008

Good Investment Performances Equals Investor Satisfaction

Raymond James led in investor satisfaction among 19 full service investment firms, according to a study from J.D. Power and Associates.
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The current economy has led investors to look more closely at investor performance as a key element to their satisfaction, according to a release of survey results from J.D. Power and Associates, a global marketing information firm. This year, investment performance surpassed financial adviser/broker as the most important factor, accounting for 24% of overall satisfaction, compared with 19% in 2007. Financial adviser/broker accounts for 22% of overall satisfaction, down slightly from 24% in 2007.

However, overall satisfaction is substantially lower among the 12% of investors who report they do not have a financial adviser or team assigned to them.

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The study measured overall investor satisfaction with full-service investment firms based on six factors (in order of importance): investment performance; financial adviser/broker; commissions and fees; account setup/account offerings; convenience; and account statements. The study also measures investor satisfaction within three investor portfolio types: affluent investors ($1 million or more in investable assets); mass affluent investors (between $100,000 and $999,999 in investable assets); and mass market investors (less than $100,000 in investable assets).

Raymond James ranks highest in investor satisfaction with a score of 831 on a 1,000-point scale, receiving high ratings from investors in all six factors and performing particularly well in proactively contacting investors. Edward Jones follows in the rankings with a score of 806, and UBS Financial Services ranks third overall with 798, according to the release. The full scores are available here.

Improving Satisfaction

J.D. Power and Associates said advisers can improve client satisfaction by keeping up with periodic contact with investors, whose varying asset levels require different levels of contact frequency. According the study results, to achieve similar levels of high satisfaction among the three investor segments, investment firms need to proactively contact affluent investors an average of 4.2 times per year, mass affluent 2.8 times, and mass market 1.7 times.

“Current economic conditions, as reflected in declines in stock market indices, have heightened investor awareness of portfolio performance,” said David Lo, director of investment services at J.D. Power and Associates, in the release. “Regardless of market conditions, advisers who succeed at managing the expectations of their investors can help to mitigate some of the negative effects. For instance, keeping investors informed by conducting regular portfolio reviews and including portfolio performance information on account statements can have a considerable impact on satisfaction.”

The 2008 Full Service Investor Satisfaction Study, conducted in April and May, is based on responses from 4,528 investors who primarily invest with one of the 19 firms included in the study.

 

 

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