The Markets March 10, 2010

Transferring Participants Have a Fixed Sense in February

For a change, 401(k) participants who realigned their balances didn’t seem to be tracking the market.
Reported by

Despite the positive stock market performance during the month, participants inclined to transfer demonstrated a strong disposition toward fixed-income options, according to the results of the Hewitt 401(k) Index.  Approximately $285 million moved from equities to fixed-income investments during the month, and 70% of the days during the trading-shortened (19 trading days) month experienced fixed income-oriented transfers. 

Hewitt noted that both GIC/stable value funds and bond funds received large inflows during the month; the former category pulling nearly half (47%) of the inflows, with $148 million transferring into this asset class. Bond funds received net transfers of $116 million, 37% of the inflows.

In contrast, both large U.S. equity and international funds had outflows of $110 million, followed by company stock ($39 million) and emerging market funds ($24 million).

On average, just 0.04% of balances transferred on a net daily basis in February, though there were only two above normal1-levels of transfer activity—and that on two consecutive days during the month (February 5 and 8)—directly following a substantial market drop.  On those days, trading was approximately twice and one-and-a-half times the normal transfer volumes.

Allocation Assets

Despite those moves—and doubtless aided by the market’s rebound—participants’ overall allocation to equity investments was 58.1% at the end of February, marginally higher than the 57.8% at the end of January (see “Market Continues to Move Participants”). That said, stable value continued to be the single largest holding, representing 26.3% of the overall portfolio. Other significant allocations included:      

  • 17.16%—large U.S. equity
  • 14.51%—company stock
  • 11.46%a—lifestyle/premix
  • 6.87%—international
  • 5.94%—bond
  • 5.37%—balanced.

In terms of the way participants allocated their discretionary contributions (participant only-contributions), the allocation to equity funds was 60.0% in February, which represented a slight decrease of 0.4% from the previous month.

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(1) According to Hewitt, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds 2 times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.


In Practice March 10, 2010

Advisers Look for More than Product-Pushing from Wholesalers

Amid the financial crisis, financial advisers reported they are increasingly relying on internal wholesalers at asset management firms, according to a study by the Financial Research Corporation (FRC).
Reported by

The study, based on a survey conducted in August among advisers of all channels, found that 86% of advisers reported relying more on internal wholesalers, according Amy Strong, research analyst at FRC.

FRC attributes the trend to advisers needing more support amid the financial crisis. “Advisers were pulling as much support services as they can, in some cases to talk their clients down from the ledge,” Larry Petrone, director of research at FRC, told PLANADVISER.

The study also found that trustworthiness was ranked as top criterion by 86% of advisers—and trustworthiness can mean many things to advisers. In qualitative responses, advisers reported that they see trustworthiness in wholesalers who go beyond product-pushing. “Are they there to sell product or are they there to help the adviser?,” Petrone said. Advisers want wholesalers to take the time to understand their strategy, business, and the types of clients they cater to, he added.

Face Time

Wholesalers who approach the adviser (as opposed to the other way around) might be more effective. Advisers said when wholesalers approach them (which is 29% of the time), they do more business with that wholesaler 46% of the time. In contrast, advisers said they would do more business when they approach a wholesaler about 35% of the time.

Furthermore, face time makes a difference: 81% of advisers said when they interfaced with external wholesalers they were highly or moderately influential, compared to 60% of internal wholesalers. “The external has an advantage because they are meeting with advisers face to face,” Petrone said.

Petrone said its “loud and clear” that a wholesaler who builds a relationship makes a difference. “They’re raising the bar of what they expect of wholesalers.” It’s not enough for wholesalers just to offer product information of the occasional, quarterly visit, he added.

“Advisers are becoming keenly more aware of the knowledge level of wholesalers and their expectation of wholesalers is increasing,” FRC’s Strong said.

Where the hybrid wholesaler model fits in is not yet clear yet, the researchers found. “We’re seeing really a wide variance from firm to firm in both how they deploy and how they define and how they manage their hybrids.” For instance, advisers reported seeing difference in how much field time hybrid wholesalers at different firms put in. Petrone how the hybrid model evolves will be something to watch in the next couple years.

Almost a third of advisers reported that hybrids are less effective or somewhat less effective compared to external wholesalers (29% said they are more effective), Strong said. Compared to internal wholesalers, 23% of advisers said hybrid wholesalers are less effective and 39% said they are more effective.

The 2009 ADVISOR INSIGHT Series: Wholesaler Effectiveness was derived from a survey of more than 1,500 financial advisers.

More information is available at www.frcnet.com.

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