Data & Research October 30, 2014

Advisers Including More Passive Investments in DC Plans

Client pressure to cut costs is leading advisers working with defined contribution (DC) retirement plans to significantly change fund lineup recommendations in favor of passive investment options.
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According to the annual Retirement Plan Advisor Trend Study, conducted for Cogent Reports by Market Strategies International, two-thirds (64%) of advisers with at least $10 million in retirement plan assets now include passive investments on their recommendation list. This compares with just more than half (54%) who did so last year.

Driven in part by the addition of passive investment options, DC plan advisers, on average, now use 5.7 investment managers in the plans they service—a 46% increase over the average of 3.9 managers they were using last year, the report shows.

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“Unlike the retail marketplace, where we see advisers consolidating their mutual fund assets with fewer providers, open architecture platforms in the DC plan market are facilitating the expansion of investment offerings, enabling advisers to respond to market demands and client requests with more options, especially choices that provide better value for their plan participants,” says Linda York, vice president of the syndicated research division at Market Strategies and lead author of the report.

This is resulting in growing use of indexed funds and heightened competition for actively-managed strategies, according to Cogent Reports. Open architecture target-date solutions are also getting a closer look as advisers pursue the best-in-class providers in each asset class underlying their target-date fund (TDF) offerings.  

The full report evaluates the competitive position of 47 leading DC investment managers on a variety of metrics, including identifying those fund managers that advisers have recently started or stopped recommending to clients. While American Funds ranked first, with 22% of advisers planning to add the firm, second place Vanguard (19%) experienced the most significant year-over-year increase in momentum.

“The surge for Vanguard is a clear result of the increasing prevalence and preference among DC advisers for recommending passive investments within DC plans,” York says. “At the same time, it’s important to note that American Funds has long been recognized as a low-cost active manager, which is helping to insulate the firm from competitors in today’s cost-conscious environment.”

Other well-known fund providers mentioned in the trends report include:

  • BlackRock, with 18% of advisers planning to add the firm to the recommendation list, and 2% planning to drop it;
  • Fidelity Investments, with 15% of advisers planning to add the firm, and 4% planning to drop it;
  • Franklin Templeton Investments, with 12% of advisers planning to add the firm, and 1% planning to drop it;
  • J.P. Morgan Asset Management, with 10% of advisers planning to add the firm, and 2% planning to drop it;
  • Oppenheimer Funds, with 10% of advisers planning to add the firm, and 5% planning to drop it;
  • Dodge & Cox, with 10% of advisers planning to add the firm, and 2% planning to drop it;
  • T. Rowe Price, with 9% of advisers planning to add the firm, and 1% planning to drop it; and
  • PIMCO, with 9% of advisers planning to add the firm, and 10% planning to drop it.

Information about how to obtain the full Retirement Plan Advisor Trend Study is available here.

Data & Research October 30, 2014

Americans Feel Guilty About Investing Habits

Amid feelings of guilt over not investing enough (a mere 23% feel “proud” of how they handled their money this year), Americans know they need to do more investing and saving for the future, according to the latest Merrill Edge Report.
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Of the 1,046 mass affluent Americans (individuals with $50,000 to $250,000 in investable assets) surveyed for Bank of America’s latest Merrill Edge Report, more than half (51%) did not save for retirement at all in 2014. Only half (50%) of respondents said they are “content” with the financial decisions they made.

“Many mass affluent Americans feel they didn’t do enough this year to put themselves in a good place for the financial future they desire,” says Aron Levine, head of preferred banking and Merrill Edge at Bank of America Corporation. “The good news is investors of all ages are rethinking their priorities and plan to make retirement a top goal in 2015.”

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Nearly six out of 10 (59%) respondents say they are making retirement savings and investing a goal for the upcoming year. This is a more popular goal than losing weight, which was cited by 42% of respondents.

Feelings of guilt over not investing outpaced other year-end regrets including poor eating and drinking choices, not sharing enough time with loved ones, or spending too much money. However, when asked about the role finances play in their day-to-day decisions, respondents revealed these other daily choices merit more of their attention. 

While long-term finances are taken into consideration by most respondents when conducting routine financial activities such as paying bills (73%) and receiving extra funds (66%), less than half (47%) make the same connection between daily purchases such as groceries and their long-term financial goals.

Most do not believe other spending activities will impact their long-term financial goals, instead believing that spending on entertainment (33%), eating at restaurants (37%) and paying for gas (38%) makes a difference for their goals.

The study also found a distinction between Millennials and older generations. Millennials are the most focused on their investments, with 33% reporting that among a number of other common tasks, they spend the most time each week on their investments. In comparison, only 20% of Gen Xers and 17% of Baby Boomers report the same. Importantly, 40% of Gen Xers say budgeting is a top focus among common financial activities, and 40% of Baby Boomers cite the grocery list.

“Millennials, in particular, feel they are held back from investing and saving enough for retirement because of debts from unpaid student loans,” Levine says.

The survey found that 75% of Millennials have student debt, and 46% admit to putting off retirement savings and investing until they have paid off outstanding student loans. However, more than half (51%) of Millennials were able to pay down their debt in 2014.

Levine says, "With some uncertainty still surrounding the economy and the job market, the younger generation is taking matters into their own hands by making investing and saving a top priority."

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