Data & Research June 23, 2023

Median Retirement Plan Value Hits Record Low in 2022

Market volatility also contributed to declines in average plan balances, contribution rates and overall plan participation, according to Alight.  

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The median defined contribution plan value among more than 3 million participants in 2022 was $23,818, the lowest value in more than a decade, according to Alight’s recently released 2023 Universe Benchmarks report. 

The lower median value was due in part to new participants coming in with shorter service times and small balances last year, but plans across all timelines and sizes were hit by market declines, according to the report, with median returns for investors declining 14.7%. The tough year for savers led to overall drops in plan balances, contribution rates and other key measures that trended “in the wrong direction,” Alight wrote. 

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The average plan balance overall fell from $114,280 at the start of the year to $111,210 by year end, Alight found. Meanwhile, average plan participation slipped slightly to 83% from 84%, and the average contribution rate from participants dipped to 8.3% from 8.6% in 2021.  

The retirement benefits provider still struck a positive, ‘silver lining’ message in the report despite the market hit to savers. Alight found that participants held the course overall, as loan usage remained historically low and only 19% of participants had an outstanding loan. As recently as a decade ago, the percentage was closer to 30%, according to Alight. 

“On the surface, it might seem like 2022 was a lost year for workers in defined contribution plans,” Rob Austin, head of research at Alight Solutions, said in a statement. “Every day, Wall Street seemed to be punching plan balances down. Additionally, practically all other key measures of success—plan participation, average savings rates, loans and withdrawals—were trending in the wrong direction.”  

But when digging deeper into the data and findings from the report, 2022 was not as bad as it may have seemed, according to the researcher.  

“Trading activity was basically the same as other years. Most people did not make drastic, knee-jerk reactions to their investments,” Austin said. “Only 3% of people stopped contributing, and the number of people who increased contribution rates was more than twice the number who decreased their savings. In fact, much of the movement in the data can be attributed to an influx of newly eligible participants. Because of the Great Reshuffling, the percentage of DC-eligible workers with fewer than two years of service increased by 30% in 2022.” 

In 401(k) plan participant research released by Fidelity Investment’s earlier this year, that positive message was reinforced by an upward trend in the final quarter of the year.   When considering Fidelity’s full sample of 43 million savers, account balances were up in the fourth quarter of 2022, and participants continued to defer into retirement plans despite higher costs due to inflation and market uncertainty.  

“It will be interesting to see if workers return to saving at higher rates,” Alight concluded in its report Lincolnshire, Illinoi-based firm’s report featured data from nearly 100 plans covering 3 million eligible participants.  

The Markets June 23, 2023

Number of Investment Advisers Hit Record High in 2022

The uptick occurred even as assets under management fell for the first time since the 2008 financial crisis, according to an annual study.

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The number of investment advisers in the U.S. hit a record of 15,114 in 2022, even as assets under management declined for the first time since 2008, according to an annual report by the Investment Adviser Association and National Regulatory Services, a Comply company.

The country added 308 fiduciary advisers, or 2.1% more than last year, in part to meet demand for people looking to navigate turbulent markets, according to the annual Investment Adviser Industry Snapshot. The report, in its third year, is drawn from investment advisory data filed with the Securities and Exchange Commission on Form ADV Part 1A.

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“Investors are increasingly engaging investment advisers, which continuously provide investment management advice as fiduciaries,” Karen Barr, the CEO and president of the IAA, said in a statement. “Over the past five years, over 22 million more individuals have engaged an investment adviser for asset management—a rate of growth in both the number of individual clients and assets of roughly 12% per year.”

The growth came even as market conditions brought assets under management down 11.1%, only the third drop in the past 22 years; the other drops occurred during the 2008 financial crisis and burst tech bubble of 2002. 401(k) accounts were also hit by market declines, with retirement benefits firm Alight reporting a 14.7% drop in the median return for investors in defined contribution plans last year.

Investment advisers managed total assets of $114.1 trillion last year for 61.9 million clients. Clients using asset management services grew by 2.1% to a record high of 54.3 million. The total number of clients—including those using financial planning services—declined by 4.3% as digital advice offerings evolved, according to the IAA and Comply.

While growing overall, the investment advisory industry continues to experience significant churn, according to the report, with 834 firms terminating their SEC registration. The turnover was concentrated among advisers with less than $1 billion in assets.

Last year, 88.5% of advisers had less than $5 billion in AUM, and more than half had between $100 million and $1 billion, according to the report.

The organizations also noted the impact of the SEC’s newly introduced marketing rule, which the regulator has continued to broaden and clarify as recently as earlier this month. Nearly 40% of advisers included performance information in advertisements in 2022 to comply with the rule, according to the report—though the data collection was not comparable to 2021, as it came from new questions in the filings.

Both the number of funds and assets under management continued a 10-year trend of increasing more rapidly for private equity funds than for hedge funds, according to the report. Private equity funds in 2022 accounted for 44.2% of the number of private funds and 32.8% of private fund assets.

“This year’s report underscores the diverse nature of the industry and its continued growth, most notably in terms of the number of firms and the number of private funds,” John Gebauer, Comply’s chief regulatory officer, said in a statement. “These trends are clearly having an impact on the SEC’s focus areas for examinations and rulemaking, as evidenced by the proposals made this year which aim to increase protections for private fund investors.”

The organizations noted that over the past 22 years, the growth in the number of SEC-registered advisers has been consistent with economic growth, as measured by GDP. Growth in assets under management has been affected by stock market performance.

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