The Markets October 22, 2009

Desire for Advice Influenced Retirement Money Movement

A new analysis shows that, contrary to popular opinion, mass affluent consumers were not passive during the difficult financial environment of 2008 and 2009.

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In fact, the analysis says, investors moved significant amounts of retirement money, including taxable assets, over the past year, in search of better value, personalized advice and guidance, and a financially sound provider. A large percentage of mass affluent consumers in the study self-identify as “beginners,” recognizing the fact that they need professional financial advice. The study also found that prior to age 65, the frequency and size of money movements generally increased with experience and income.

“Retirement Money in Motion: Capitalizing on IRA, Rollover & Taxable Money Movement” found that the desire to consolidate accounts was the number one driver of retirement movement decisions but, for financial services companies, a minimum, pre-existing 20% wallet-share capture was required to win this business. Financial soundness perceptions (and realities) of companies drove a third of retirement money movement decisions.

Teresa Epperson, a partner at Mercatus LLC, which conducted the study in conjunction with Financial Research Corporation (FRC), noted in a press release that, “While financial soundness concerns drove over a third of retirement money movement, the desire for advice, whether packaged or personalized, was a much more influential driver.”

The study was conducted in May of 2009 and covered the prior 12-month period. Respondents were from most U.S. states, ranged in age from 35 to 70, and had an average of $614,000 in investable assets. Topics covered in the study include an overview of mass affluent consumers’ retirement money movement decisions relative to their retirement assets, as well as their age, income, and investing experience. In addition, participants had to have completed at least one of the following transactions within the past year: rolled assets over from the employer-sponsored retirement plan to an individual retirement account (IRA), transferred assets from an IRA with one firm to an IRA at another firm, or transferred taxable assets designated for retirement from one firm to another.

The study report can be found at www.frcnet.com.

The Markets October 21, 2009

Investing in Sin Pays

A recent paper says that investors gain 2.5% higher returns every year, on a risk-adjusted basis, by investing in "sin" stocks–publicly traded companies involved in alcohol, tobacco, and gaming–versus investing in stocks with comparable characteristics.

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According to a press release, the study also found that there is a societal norm against funding operations that promote vice and that some institutional investors, such as pension plans, hold less of these stocks than other investors and miss out on the gains. In addition, “sin” stocks receive less analyst coverage than stocks with comparable characteristics.

“This research shows that social norms are important for economic outcomes and that they affect markets, including investment decisions, stock prices, and returns,” said NYU Stern Assistant Professor of Finance Marcin Kacperczyk, who co-authored the study paper with Harrison Hong from Princeton University.

Their paper, “The Price of Sin: The Effects of Social Norms on Markets,” is available here.

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