Data & Research October 13, 2016

Many Millennials Still Turn to Parents for Some Financial Assistance

Twenty-one percent are still living with their parents.
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Nearly half (47%) of Millennials have turned to their parents to pay for some of their expenses, such as cell phone plans, utilities, or movie and television streaming services, according to Fidelity Investments’ second biennial Millennial Money Study. In addition, 21% of this demographic group are still living with their parents.

Nonetheless, 85% of Millennials have saved some money, up from 77% in 2014. Nearly six in 10 Millennials, 59%, have set aside emergency savings, averaging $9,100—more than the $8,700 that Generation X and the $7,100 that Baby Boomers have saved. Furthermore, 60% of Millennials are saving for retirement, up from 51% in 2014.

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Among those Millennials with emergency savings, 86% have stored that money in a savings account, which currently is likely to earn less than 0.25% in interest. While 62% of Millennials have an investment account, oddly enough, only 9% consider themselves dedicated investors. Forty-four percent say they are spenders, while 46% say they are savers.

Sixty-one percent of Millennials use a mobile application to access their checking and/or savings account. Fifty-two percent use mobile apps to manage their credit cards, and 49% use them to pay bills. However, only 14% are using mobile apps to check their brokerage accounts, and a mere 18% are using them to manage their retirement accounts.

Although many Millennials turn to their parents for financial help, and 65% of Millennials say their parents have been good financial role models, ironically, 34% find it difficult to discuss money with their parents, up from 24% in 2014.

“Many young adults are interested in investing, but sometimes feel hesitant in taking that initial step,” says Kristen Robinson, senior vice president at Fidelity Investments. “Everyone needs to start somewhere, and with a bit more knowledge and experience under their belt, we anticipate Millennials will feel more comfortable engaging in conversations with family and friends and will start exploring how they can make their money grow. Finding ways to turn positive savings habits into positive investing strategies will help Millennials gain greater confidence—and, ultimately, financial independence.”

GfK Public Affairs conducted the survey of 615 people for Fidelity Investments in July; 305 of them were Millennials, 155 were Gen X’ers, and 155 were Baby Boomers.

Data & Research October 12, 2016

DCIO Market Grows to $3.5 Trillion

DCIO assets now account for almost half of the DC market, according to the latest in-depth study by Sway Research.
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Defined contribution investment only (DCIO) assets now total an estimated $3.5 trillion, amounting to 48% of the defined contribution (DC) market, according to the latest study by Sway Research.

Sway projects DCIO assets to grow at more than twice the rate of proprietary assets through the remainder of this decade to produce total DCIO assets under management (AUM) of $4.4 trillion in 2020, at which point IO would make up 52% of DC assets.

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The firm notes that asset managers remain committed to the DCIO market even in the face of increased pressure from passive management and the uncertainty that looms with the implementation of the Department of Labor (DOL)’s fiduciary rule.

According to the report, assets at the average DCIO manager increased by 5% throughout the 12 months ending on June 30, 2016. Although gross sales levels in the first half of 2016 improved relative to 2015, the average manager experienced slight net redemptions from its DCIO business of $21 million, following net outflows of $304 million in 2015, Sway reports. The firm expects this trend of asset growth outpacing net redemptions to continue, barring a steep or prolonged correction in U.S. equities.

The report also notes a positive trend for DCIOs in terms of target-date solutions. More than half of managers surveyed reported that these products have had a positive impact on DCIO sales in the past year, up from 40% of firms two years ago.

However, Sway also says increased use of passively managed portfolios within DC plans is a growing concern. Nine out of 10 managers indicated that the growth of passive management has had a corrosive effect on DCIO sales. The report also indicated that specialist DC plan advisers increasingly favor passively‐managed portfolios over active ones in key asset classes, such as U.S. large cap equity and target‐date investments.

Sway’s research also highlights the rise of institutional pricing. It finds that “products with 12b‐1 and sub‐T/A fees are fading from DC plan investment menus, while zero-revenue mutual fund shares and, to a lesser extent, collective investment trusts (CITs) are booming, as specialist plan advisers forsake commissions in favor of revenue models based on flat‐ and asset‐based fees.”

The average manager generated about 30% of its first‐half 2016 gross DCIO sales in zero-revenue products, while leading plan advisers expect allocations to CITs in the DC plans they serve to grow from an average of 10% today to 16% by the end of the decade.

NEXT: The DOL Rule’s Effect on DCIO

According to Sway, managers are sticking to the DCIO space as evidenced by expanding staff. The firm found that about one in three managers added to field sales or home office staff in the past year, and two in five say hiring additional sales staff is the top priority for 2017. Many also expect to allocate additional resources to staff training in light of the DOL fiduciary rule. Sway notes, however, that “this training will have to wait, as DCIOs need to first understand how key distribution partners plan to respond to the new regulations before they can determine how to best support them.”

When asked what changes they will make in response to the DOL rule, the most common response from DCIO sales leaders was "I just don't know yet."

More than four in five specialist advisers within the retirement/benefits consultant segment, who specialize in employer benefits and manage more than $1.1 billion of DC assets on average, believe the fiduciary rule will lead to enhanced business growth. However, those in the retirement adviser segment who have DC businesses worth $70 million in plan assets on average, but focus on serving affluent individual investors, mostly expect the regulatory changes will lead to more time spent documenting plan decisions, higher costs, and lower margins on DC business.

Either way, Sway concludes that DCIOs have an opportunity to help intermediaries in both segments adapt to and benefit from the new rules.

These findings are from the 10th edition of the “The State of DCIO Distribution,” which is Sway Research's annual benchmarking study on the defined contribution arena. This year’s edition provides benchmarks for asset managers as well as feedback from plan advisers. It is based on interviews with DCIO executives and plan intermediaries, as well as surveys of DCIO sales leaders from 25 leading asset management firms with approximately $950 billion of DCIO AUM, and executives from 124 plan intermediaries with nearly $70 billion of DC AUM. The surveys and interviews were conducted during the summer of 2016.

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