The Markets September 10, 2018

TDFs Particularly Popular Among Younger Investors

Sixty-four percent of participants in their 20s own a TDF.

Reported by

Younger 401(k) participants have larger allocations to target-date funds (TDFs) and other types of balanced funds than do older participants, according to a joint study by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI). At the end of 2016, 64% of participants in their 20s owned a TDF, compared with 45% of those in their 60s.

The study, “401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2016,” shows that among recent hires—i.e., those on the job two years or less—59% are invested in a TDF, compared with 52% of participants overall.

“Target-date funds continue to be a widely available, widely used, popular and convenient investment choice for retirement savers,” says Sarah Holden, senior director of retirement and investor research at ICI. “Recently hired workers in particular often hold target-date funds in their 401(k) plan account, reflecting current plan design.”

More participants hold equities than before the financial crisis of 2008. Sixty-seven percent of 401(k) assets in 2016 were invested in stocks through equity funds, balanced funds or company stock. Twenty-seven percent of the assets were in fixed-income securities, including stable value funds, bond funds, money market funds and the fixed-income portion of balanced funds.

“Retirement savers continue to invest heavily in equities through their 401(k) plan,” says Jack VanDerhei, research director at EBRI. “Though this is in large part driven by younger plan participants, savers in their 60s also remained focused on growth and held 55% of their 401(k) plan assets in equity investments.”

Only 7% of participants in their 20s in 2016 had no equities, and 77% had more than 80% of their balance invested in equities. By comparison, 11% of participants in their 60s had no equities, and only 19% had more than 80% of their balance in equities.

At year-end 2016, participants in their 40s with between two and five years of tenure had an average account balance of $38,000, and those in their 60s with more than 30 years of tenure had an average account balance of $287,000.

Only 6% of 401(k) plan assets in 2016 were invested in company stock, down from 19% in 1999.

Nineteen percent of participants eligible for a plan loan had an outstanding loan in 2016, up from 18% in 2015.

In Practice September 10, 2018

Advisers Increasingly Turn to Third-Party Asset Managers

Many view this as a way to make their practices more efficient, plus add value.

Reported by

FlexShares, the exchange-traded fund (ETF) unit of Northern Trust Asset Management released its fifth biennial study exploring financial advisers’ views on and adoption of external investment management services. Forty-three percent of advisers employ third-party investment management solutions.

Advisers are outsourcing 57% of client assets, up from 53% in 2016. The top three reasons they give for doing so are to “free up time in my practice” (61%), to “gain access to institutional quality due diligence/monitoring” (47%) and to “gain access to a variety of investment product strategies” (43%).

Advisers also turn to outside sources to access niche strategies, particularly alternative investments (65%), emerging/frontier markets (43%), environmental, social and governance (ESG) investments (17%) and smart beta investments (14%).

Ninety-seven percent of advisers who outsource some or all of their assets are satisfied with the service, up from 92% in 2010. Sixty-two percent said that by outsourcing investment management, they have grown their client base, and 30% have seen their revenue increase.

“As advisers adapt to a growing demand for financial planning services and rising pressures on their bottom line, they are increasingly looking to employ external investment management services and to focus on activities through which they can add the greatest value,” says Laura Gregg, director of client development at FlexShares. “As they dedicate more client assets to outsourcing, advisers are able to benefit by spending more focused time with clients, as well as concentrating on business development activities.”

Among advisers who are not outsourcing investment management, 32% said it is because investment management is a core part of their firm’s value proposition. However, this is down from 56 % in 2014.

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

Forty-eight percent of advisers are also looking for external marketing support; 29% want external compliance support; and 24% want social media training from an outside source.

Six percent of advisers use a digital advice platform, and 12% plan to incorporate one in the next year or two.

FlexShares’ findings are based on a survey of 600 advisers conducted in February and March.

«