The Markets August 1, 2014

RIAs Seeing Strongest Asset Growth This Year

Registered investment advisers (RIAs) have increased long-term mutual fund and exchange-traded fund (ETF) assets under management by more than 12% this year, according to Broadridge research.
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This signifies the first time the RIA channel grew at a faster pace on a percentage basis than all other retail channels—including independent broker/dealers (B/Ds)—according to a new analysis released by Access Data, a Broadridge Financial Solutions, Inc. company.

“As investors continue to gravitate toward independent advice models, we expect to see sustained growth in the RIA channel,” explains Frank Polefrone, a senior vice president at Access Data. “For the first half of 2014, the RIA channel had the largest increase in absolute dollars for both ETFs and long-term mutual funds across all channels.”

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According to Access Data, the RIA channel accounted for $1.8 trillion in long-term mutual fund and ETF assets under management in the first half of the year, an increase of almost $200 billion over the end of 2013. Additional key findings generated by Broadridge’s fund distribution intelligence tools show total third-party, long-term mutual fund and ETF assets under management have increased to $9.3 trillion, up from $8.5 trillion at the end of 2013 for about a 9.8% increase.

For all retail channels combined—including RIAs, independent and regional B/Ds, wirehouse B/Ds, and discount brokers—assets under management stand around $6 trillion. This is about 64% of all third party distribution of long-term mutual funds and ETF assets, Access Data says.

Earlier this year, Broadridge issued an in-depth report on RIAs, “The RIA Channel – A Roadmap for Driving Growth,” highlighting the opportunities that the RIA channel presents for fund firms. “By understanding the unique characteristics of these firms in terms of product usage, the client base they serve, and their general investment philosophies, funds can better position their products and grow assets,” adds Polefrone.

The earlier research suggests the rapid growth in the sales of these products by RIAs is reshaping the way fund firms market and distribute ETF and mutual fund products. According to insights from Access Data, RIAs now sell more, in aggregate, than the top four wirehouses. Unfortunately for fund sales and marketing executives, RIAs tend to be small and more diverse, unlike wirehouse institutions, and therefore harder to reach using traditional distribution strategies.

Gaining access and winning business in the independent space requires advanced segmentation and specific targeting of the individual adviser, according to Access Data. The research suggests RIAs with $100 million to $1 billion in assets under management have the biggest aggregate asset base of all the segments. RIAs in this segment also tend to use ETFs and mutual funds more actively.

Broadridge’s Fund Distribution Intelligence tool provides sales and asset data collection information for more than $9.3 trillion of long-term mutual fund and ETF assets across 900 distributors. More information is available at www.broadridge.com.

Data & Research July 31, 2014

A Fiduciary Roadmap for In-Plan Lifetime Income

An analysis published recently in the Benefits Law Journal guides plan officials through the process of building a fiduciary framework for selecting lifetime income options.
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The analysis, “Guaranteed Lifetime Withdrawal Benefits: Fiduciary Considerations for Plan Sponsors,” was developed by Robert Eccles, Gregory Jacob and Wayne Jacobsen, all of the law firm O’Melveny and Myers LLP. It outlines an approach that can be used to fulfill plan fiduciary obligations to act in a prudent manner, the attorneys say.

IRIC, a nonprofit think tank supporting the retirement income planning community, helped to underwrite the research effort from Eccles, Jacob and Jacobsen—three lawyers specializing in the Employee Retirement Income Security Act (ERISA).

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“Despite workers’ growing desire for guaranteed retirement income, especially in light of the continuing shift from traditional pension plans to defined contribution plans, many employers have been reluctant to include retirement income options such as guaranteed lifetime withdrawal benefits products (GLWBs) in their retirement plans,” says William Charyk, president of IRIC, based in Iselin, New Jersey.

He adds, “The employers’ hesitation lies primarily with their misconceptions concerning perceived fiduciary responsibility and liability issues with these options. The attorneys, however, offer a new approach that we believe will help plan sponsors get through the many challenges of offering a retirement income option.”

The authors of the analysis demonstrate that fiduciary standards applicable to offering a GLWB option in an employer-sponsored retirement plan are “no different than the standards applied to fiduciaries relative to the selections of any other investment or retirement income option.” They also emphasize that the decision to include the category of a retirement income option in a retirement plan investment menu should be made at the settlor level, rather than the fiduciary level.

The analysis offers what Charyk terms as a “new fiduciary roadmap” to supplement existing guidance that fiduciaries can use when choosing an appropriate GLWB option. This includes how to:

  • Account for portability concerns;
  • Evaluate GLWB fees;
  • Identify an appropriate GLWB provider;
  • Evaluate a provider’s ability to make future payments;
  • Periodically monitor providers; and
  • Educate plan participants.

Charyk believes that this approach will ultimately lead more employers to start looking at retirement income solutions and to feel substantially more comfortable with their ability to satisfy the relevant legal and fiduciary duties. He adds, “The authors’ roadmap of existing regulatory guidance, used in conjunction with other available guidance, will provide plan fiduciaries with confidence to construct a prudent process, consistent with their legal obligations, for evaluating, selecting, and administering GLWBs.”

A copy of the analysis, which appeared in the summer 2014 issue of the Benefits Law Journal and was financed in part by IRIC, can be found here.

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