Deals & People July 31, 2014

Former Merrill Lynch Exec Joins Focus Financial Board

Focus Financial Partners, LLC announced that Dan Sontag, former president of Merrill Lynch’s global wealth management unit, has joined the Focus wealth management network’s board of directors.
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The addition of Sontag brings the total number of directors to seven, according to Focus. Of the seven board members, six are independent and not affiliated with Focus. The firm says it hopes to leverage Sontag’s business acumen and knowledge of the wirehouse community “as more of the top wealth managers seek opportunities within the independent space.”

Specifically, Sontag will work to support the Focus Connections program, which helps independent advisers plan and execute practice growth. “This is the most exciting time to offer strategic guidance in the wealth management industry, as the industry evolves and independent wealth management firms continue to gain market share,” Sontag adds. 

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The Focus Connections program also provides transition support to wealth management teams and individual advisers as they leave wirehouses and other providers to create their own independent registered investment adviser (RIA) firms.

Sontag’s most recent role at Merrill Lynch was head of global wealth management, where he was responsible for Merrill’s wealth management and advisory activities around the globe. Additionally, he had direct oversight of all investment platforms, technology and operations support for the nearly 20,000 advisers in Merrill’s wealth management offices, private bank and international wealth businesses.

More information on Focus Financial Partners is available here.

Data & Research July 31, 2014

DC Accounts Continue to Rebound from Credit Crisis

The average account balance of consistent participants in 401(k) plans saw a 6.8% annualized increase between year-end 2007 and year-end 2012, says a new study.
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The increase reflects both employer and worker contributions, according to joint research from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), as well as investment returns, withdrawals and loans. As the study points out, this relatively strong yearly growth comes despite a 34.7% drop in the average 401(k) account balance experienced during the depths of the most recent financial crisis, circa 2008.

The study, called “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2012,” also discovered that the average account balance of “consistent participants” was 67% higher than the average account balance among all participants in the EBRI/ICI 401(k) database. Sarah Holden, ICI’s senior director of retirement and investor research and coauthor of the study, says this result suggests that contributing to a 401(k) plan consistently is likely to result in higher account balances—even during periods of substantial market volatility.

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This study also revealed that slightly more consistent 401(k) participants—i.e., those with accounts during each year in the sample period—held target-date funds (TDFs) at year-end 2012 than did so at year-end 2007. According to Jack VanDerhei, EBRI research director and coauthor of the study, almost one-third of those holding target-date assets invested all of their 401(k) balances in TDFs.

“The data confirms the continuing important role of target-date funds in 401(k) plans, revealing that a substantial core of consistent 401(k) participants who held at least some target-date fund assets in their account before the financial crisis, still did so at year-end 2012,” he explains.

When analyzing the group of consistent 401(k) participants at year-end 2012, the data showed that 4.5% had added a TDF allocation since 2007. At year-end 2007, 27.6% of 401(k) participants in the consistent sample owned target-date funds. By year-end 2012, ownership in the consistent sample had increased to 32.1%. More than two in five (43.7%) consistent 401(k) participants in their 20s had target-date funds in their 401(k) accounts at year-end 2012, compared with 28.4% of consistent 401(k) participants in their 60s.

Looking at the wider sample, ownership of TDFs in 2012 had increased considerably to reach 41%, an increase of 15.9 percentage points since 2007. Because TDFs are often used as a default investment option in 401(k) plans with automatic enrollment, some of their growth is related to the spread of automatic enrollment in recent years, the study says. 

On average, around three-fifths of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants, according to the study.

Trends in the consistent group’s account balances highlight the accumulation effect of ongoing 401(k) participation, the study shows. At year-end 2012, 15.5% of the consistent group had more than $200,000 in their 401(k) accounts at their current employers, while another 16.2% had between $100,000 and $200,000. In contrast, in the broader EBRI/ICI 401(k) database, just 8.5% of participants had accounts with more than $200,000, and 9.5% had between $100,000 and $200,000.

A full copy of the study is available here.

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