Lifestyle and Lifecycle Funds Best Strategies for Capturing Rollovers

Between 2008 and 2013, rollovers from 401(k), 403(b), and 457 plans will account for nearly $1.9 trillion of asset flows into traditional IRAs, which will increase to $6.1 trillion by 2013, a new Cerulli report suggests.

According to the report, “IRA Rollover and Retention: Strategies and Positioning,” real success in capturing these assets will hinge on the right mix of advice.

In a release about the report, Cerulli explains that there are three main ways in which rollovers are being serviced and supported: direct to the investor; limited advice with a combination of embedded-advice solutions and limited advisory services; and full advice served with a full complement of investor-review programs.

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“We asked asset managers and IRA providers to identify the best opportunities for building IRA rollover business. Firms see embedded-advice solutions as a key component to rollover success. And, some firms identified advisory services delivered through call-center representatives as necessary component,’ said Tom Modestino, Senior Analyst and author of the report, in the press release. Focus on embedded advice (i.e. lifecycle funds) was identified as a top strategy by one-third of those surveyed.

Cerulli points out that embedded-advice programs are showing impressive growth. Lifestyle and lifecycle funds (at $51 billion and $38 billion respectively) showed a combined five-year CAGR of 58.1% and are in the early stages of adoptions. However, these funds comprise only about 1.9% of the market share of total IRA assets, so there is plenty of room for growth, Cerulli says.

Managed accounts represent 22% of traditional IRA assets as of the fourth quarter of 2007, and mutual fund advisory programs accounted for the largest share of traditional IRA assets at $883.8 billion.

The report examines the IRA rollover marketplace and provides insight for asset managers, providers, and distributors on how to best position themselves for success. In addition to case studies, the report includes market sizing, market share rankings, projections for future growth, and insight into legislative trends affecting rollovers.


Further information about the report can be obtained by contacting Cerulli Marketing & Business Development at 617-437-0084 or CAmarketing@cerulli.com.

IMHO: Staying on Course

One of my favorite quotations is George Santayana’s, “Those who cannot remember the past are doomed to repeat it.″

It is also, unfortunately, one of the most overused quotations, generally during times when we are in the middle of repeating an unremembered mistake.

The current financial mess on Wall Street is the most recent example, of course. The problem—like the tech bubble that preceded it, the derivatives mess in the mid-1980s, the junk bond blow-up before that—is not that we don’t see it coming. It’s that we don’t do a very good job of knowing when it will hit. That, and nobody wants to leave the “party’ before it’s over. And then we all wind up with hangovers.

On the plan sponsor side, it was interesting to see the encouraging words of a number of public pension plans this week (see Public Pension Groups: We’re Still OK). Most spoke to the long-term nature of their investments, and the short-term security that comfortable funding levels provided. Some offered a comforting historical perspective—since both they and their members could recall times when the markets were poised even more precariously on the precipice. And most were able to point to returns that were better than most of their participants had been reading about in the headlines—mostly because their diversified portfolios haven’t been hit as hard as the equity-only indexes that get reported.

I thought about that as I reflected on a NewsDash survey this week (see “
SURVEY SAYS: Are the Markets Moving Your Participants?“) —and what plan sponsors said they had been hearing from their advisers and providers. Not surprisingly, most had been told to tell their participants “stay the course.’

In view of what has been going on in the markets, that didn’t seem to be bad advice, even if it did seem a bit trite. But I couldn’t help thinking that a broad-based message to all participants to stay put, however well-intentioned, wouldn’t necessarily be good advice for every participant, certainly not for the ones who haven’t yet found their way into a properly diversified portfolio. This should be—and perhaps will, once the “dust’ has settled on the current crisis—an opportunity to highlight the importance of diversification, the benefits of ongoing rebalancing.

Having said that, I suspect that “staying the course’ is what the vast majority of participants will do. After all, that is what nearly all do, day in and day out, year after year. Inertia in such things is not only the order of the day, it is a behavioral tendency we can focus on, and work around with approaches such as automatic enrollment, deferral acceleration, and asset allocation solutions. Those, in turn, are approaches that allow us to say—confidently and credibly—that participants are best-served by leaving their retirement investments in place.

Staying the course is sound financial advice, after all—but only if the course you are staying on is a good one.

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