Data & Research December 10, 2015

Investors Brace for a Bumpy Ride

Overall investor optimism is stable, but the retiree outlook is less rosy.
Reported by

Investors believe more market volatility is in store, with a majority saying they expect the market to be volatile in the New Year, according to the latest Wells Fargo Investor and Retirement Optimism Index survey.

Three-quarters of those surveyed say the stock market will be rocky, including 16% who predict it will be highly volatile. Of those who anticipate market volatility, six in 10 (59%) are taking action to prepare by: consulting with a financial adviser (44%), purchasing stocks to take advantage of lower prices (30%) and selling stocks to protect from further losses (15%).

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The Investor and Retirement Optimism Index held its ground in the fourth quarter, at +59, similar to +58 in the third quarter. Optimism has been slightly weaker in the past two quarters compared to the first half of the year when the index hovered near +70, but it is still higher than the +48 recorded a year ago. Despite overall stability in the index this quarter, retiree optimism dropped 23 points, to +47, driven by a loss of confidence in retirees attaining their five-year investment goals, and reduced confidence in economic growth and inflation. At the same time, non-retiree optimism rose 10 points, to +63, because of improved confidence around employment. This marks the first time in more than a year that non-retired investors are significantly more optimistic about the investment climate than retirees.

Market bumps make it even more important that investors have a strong financial plan to keep them on track with goals and risk tolerance, says Zar Toolan, director of advice quality for Wells Fargo Advisers.

Financial advice is particularly important, according to the survey, and investors continue to rely on different ways to get it. Nearly half (45%) use a dedicated personal financial adviser. About a third (39%) use an advisory that gives access to a call center so they can speak with a live adviser. Another third (29%) rely on a friend or family member, and 22% turn to the Internet for an online financial planning or investing website. During the market volatility in late August, a third of stock investors (33%) consulted with a financial adviser. 

NEXT: The need for advice in a volatile market

There are a lot of different ways to get financial advice today, but no matter how it’s delivered, its true value lies in making sure investors have a financial plan, regularly monitored by a financial adviser, to help meet investment goals. A plan that is in line with an investor’s goals and risk tolerance makes that investor better equipped to weather the volatility, Toolan says.

During the recent volatility, investors who use a dedicated financial adviser were likelier to:

  • Say they paid closer attention than usual to the market  (57% versus 46%);
  • Sell stocks (23% versus 10%);
  • Buy stocks (40% versus 18%); and
  • Generally follow all or most of the advice from the adviser (78%).

When asked how much their portfolio matches their risk tolerance, the majority of investors (73%) say their investments have the right amount of risk for them. Of the rest, four times as many feel they could handle more risk (20%) than say they have too much (5%).

“Market volatility can be tough for investors. While most told us their investments match their risk, financial advisers often find out when they talk to clients that the match hasn’t held up well when the market fluctuated,” Toolan says. This disconnect underscores the importance of client conversations, especially during volatile markets, in helping investors stay on track to achieve their long-term financial goals.

“During times of uncertainty, investors’ attitudes and goals can change as quickly as their portfolios,” Toolan says. “This downward shift in retiree optimism highlights their concerns about reaching their near-term financial goals.”

The Wells Fargo/Gallup Investor and Retirement Optimism Index was conducted by phone from October 30 to November 8, surveying 1,018 investors randomly selected from across the country. The American investor is an adult in a household with total savings and investments of at least $10,000—about two in five American households. Respondents were non-retired (73%) and retirees (27%). Of total respondents, 42% reported annual income of less than $90,000 and 58% of $90,000 or more.

Client Service December 10, 2015

Why Plan Sponsors Search for New Advisers

Data from RFP assistance provider InHub reveals why plan sponsors search for new plan advisers, what they ask for, and mistakes advisers make in the RFP process.
Reported by

Creating the first draft of a request for proposals (RFP) was voted the most difficult task in the RFP process by institutional investors who recently issued investment consultant RFPs, according to data from InHub, provider of an online RFP solution and guided process for the institutional investment community.

Data from 20 recent investment consultant RFPs issued directly by investment committees of defined benefit plans, defined contribution plans and foundations/endowments, found eight in 10 RFPs resulted in a new hire. Most RFP issuers indicated a potential replacement as a probable outcome prior to the RFP starting, for several reasons.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The No. 1 issue motivating an RFP was a reduction in proactive service or response rate (80%). Clients stated their advisers no longer initiated new ideas and had to be reminded of what used to be regularly scheduled services. For some, their advisers were no longer accessible, the client had to follow-up multiple times on meeting action items or the followup information was incorrect and unthoughtful. Some investment committees searched for a specialist due to a general feeling that they “could do better.”

Clients also had issues with adviser expertise; conversations with advisers may become generic and the client loses confidence in the adviser. They may discover opposing philosophies about plan design or investing, or the plan may have evolved to require more of a specialist adviser.

Other reasons for conducting an RFP for a new adviser could include changes to the plan or plan sponsor or changes to the adviser firm (75%), and the desire to benchmark for proper due diligence (5%).

NEXT: What plan sponsors are asking for and adviser RFP mistakes

The most popular adviser services requested by clients were in-person committee meetings (100%), ongoing plan benchmarking and vendor analysis (100%), and investment policy statement (IPS) review and implementation (100%). This was followed by a 3(21) fiduciary investment consultant contract in writing (more than 90%).

Forty percent of clients stated in the RFP that they want the adviser to perform a formal recordkeeper RFP immediately following selection of the adviser.

Clients asked for retirement plan participant education services too; one-fourth wanted the adviser to structure and track success of education leveraged from the plan provider, and one-half wanted the adviser in-person for participant education.

InHub says seven popular questions in more recent RFPs include:

  • Does your firm target a specific client type or size? If yes, please elaborate.
  • Provide the following information for this consulting team’s defined contribution clients. Please respond in the following order: number of clients, DC assets under advisement, median client size, and largest current client.
  • If you had to choose an object to best represent your firm, what would it be and why?
  • How does team measure the success of consulting relationships?
  • Please outline, in detail, the process, resources and tools you would use to benchmark a plan of our size and how often you would recommend it is conducted. Does it also benchmark the Consultant services and fees? Please also attach a sample benchmarking report.
  • Please outline, in detail, the process, resources and tools you would use to conduct a recordkeeper request for proposal, for this plan and how often you would recommend it is conducted. Please also attach a sample deliverable.
  • Please provide any feedback/comments on our current investment policy statement and current fund lineup.

Common mistakes advisers make when responding to an RFP include:

  • Not customizing key questions to the plan;
  • Dodging questions about client base;
  • Missing deadlines;
  • Sloppy, confusing and excessive addendum documents;
  • Showing little ‘personality’, or differentiating factors; and
  • Not choosing brevity when applicable.

«