The Markets October 10, 2014

Prepare for a New Financial Era, Gross Says

“There is a new financial era. Accept it and modify your behavior accordingly, so that your future is safe, secure, and you look forward to a brighter tomorrow,” says Bill Gross.
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In his first investment outlook letter as portfolio manager of the Janus Global Unconstrained Bond Fund and related strategies at Janus Capital Group, Gross briefly addressed his departure from PIMCO, the company he co-founded.

“Had there been a reasonable way to continue there, I would have stayed to my last breath. I was honored by the trust of the millions of clients and thousands of employees over decades. They have been the center of my life’s work. I am very proud of my record there for more than 40 years,” he says. “PIMCO is a great firm with lots of great people, and Allianz was a fine owner for many years. But slowly and with great hesitation, I came to understand that it was time for me to leave. It happens sometimes to founders! But that is water under the bridge, as they say. I don’t plan to address it further.”

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To the question of why he chose to join Janus, Gross explains: “I want to return to a simpler role, completely focused on markets, investment performance and serving my clients. It seems like a good time to turn away from the complexity of helping to run a huge firm.” Gross notes that he had a 20-year relationship with Janus CEO Dick Weil—including a full decade during which Weil worked for Gross as PIMCO’s chief operating officer. “When I asked him whether Janus might provide me with that simple opportunity, he responded with a very enthusiastic ‘yes’ let’s dance together… I am not ready to retire, so here I am.”

Gross compares what is happening now in global economies to a cycle that “has begun to resemble the last stages of a 1920s marathon, with partners clinging to each other in a desperate attempt to keep from falling down.” He warns that “returns almost necessarily cannot equal the magnificent prior decades that some of you might have experienced during my days at PIMCO.” He, of course, still advocates for an “unconstrained strategy” for investing.

On a personal level, Gross says the obvious advice is, “Retire later, save more, accept a revised standard of living.” But, he notes that financial advice varies with an investor’s age and willingness to take risk. “So, one size does not fit all here. It never has.”

Gross’ investment outlook is here.

Data & Research October 10, 2014

Advisers Control Nearly 30% of DC Market

Advisers controlled 28% of all defined contribution (DC) retirement plan assets at year-end 2013, according to research from global analytics firm Cerulli Associates.
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Bing Waldert, a director at Cerulli, says the research suggests advisers have benefited from increased regulatory scrutiny of defined contribution (DC) retirement plans coming out of the most recent financial crisis.

“The retirement industry, in particular defined contribution, experienced heightened regulatory scrutiny coming out of the market crisis,” he explains. “The market downturn highlighted the role of the DC plan and its replacement of defined benefit (DB) as the primary retirement savings vehicle for the vast majority of Americans. Given the heightened scrutiny of retirement plans, the class of advisers and consultants who specialize in retirement plans and employee benefits has risen in prominence.”

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The findings are from the October 2014 issue of “The Cerulli Edge – U.S. Edition,” which explores the topic of money in motion, analyzing investor switching behavior, adviser movement, and defined contribution investment-only (DCIO) growth.

One challenge for asset managers hoping to leverage adviser relationships is that this class of retirement specialist advisers remains ill-defined. Many advisers use core business models dedicated to wealth management or other financial services, with just a few retirement plan clients, Waldert says. These specialists often believe they sell a process and a business model, rather than a product, Cerulli observes.

Cerulli estimates that close to 13,000 advisers secure 50% or more of their revenue from DC plans. About half of these advisers operate within the insurance broker/dealer channel, Cerulli says, which historically has serviced a significant number of business owners. Retirement specialists increasingly are aligning within the independent registered investment adviser (RIA) channel as its fee-based, fiduciary emphasis suits the needs of plan sponsors.

Asset managers with developed DCIO businesses often divide their sales forces between retail and institutional coverage, Cerulli finds. Retirement specialist advisers say they are more likely to work with asset managers when they can work with sales resources to achieve the joint objective of abandoning turf wars and winning mandates.

Regardless of the channel, asset churn is costly for retirement specialist advisers. Client prospecting, onboarding efforts, signing bonuses, and requests for proposal consume resources that could be spent servicing an adviser’s core accounts, Cerulli says. Limiting money in motion, therefore, can enhance growth, build loyalty, and strengthen the adviser's long-term business success.

Information about how to obtain a full copy of “The Cerulli Edge – U.S. Edition,” is available here.

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