The Markets November 15, 2013

Value Increase for Pension Risk Transfer Index

The value for the Dietrich Pension Risk Transfer Index has increased since October.
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The index, which tracks the relative attractiveness of annuitizing pension liabilities, went from a value of 96.19 in October to 97.10 as of November 1. In addition, the index’s current annuity discount rate proxy of 3.21% remains the same, despite the price of Treasuries and corporate bonds increasing.

“This month’s index is another good example of the dynamic nature of the pension risk transfer market,” says Geoff Dietrich, vice president of Dietrich & Associates. He points out that long term interest rates are down nearly 25 basis points since their high this summer, yet the cost to annuity pension liabilities is down 2% to 4% since then.

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“Whether or not a transfer is in your immediate future, there is little doubt that it makes sense to understand the magnitude of your pension liability, monitor the effects of today’s markets and be in position to act when the things align,” Dietrich recommends to plan sponsors.

The index continues to show encouraging signs for executing pension risk transfer strategies, says Dietrich, which is good news for plan sponsors contemplating a year-end pension risk transfer.

The index provides a dynamically constructed, monthly directional data point regarding the market conditions that affect settlement costs. It is designed to provide pension stakeholders a mechanism for monitoring settlement market conditions, and to support effective plan governance and decisionmaking.

More information about the index can be found here.

Data & Research November 15, 2013

Participants Do Asset Management, Solo Style

Retirement plan participants said that they control two-thirds of their assets by themselves without the assistance of an adviser.
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Nearly half of participants manage their own assets, an indication of the confidence they have in their investment knowledge and acumen, according to a survey by Spectrem’s Millionaire Corner.

These retirement plan participants represent an opportunity for financial advisers, says Catherine McBreen, president of Millionaire Corner. “Part of their reluctance to use a financial adviser might not stem so much from confidence in their own knowledge and abilities, but the fact that they might think they don’t have enough net worth that requires an adviser’s services. But our research has found that those who work with a financial adviser cite increased knowledge and peace of mind as two of the primary benefits.”

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Younger respondents are likelier to hold this self-directed mindset compared to older participants. Those under the age of 35 said they control 65% of their assets without professional help, while participants between the ages of 35 and 49 control 74% of their assets. Somewhere between the two groups are survey respondents between the ages of 50 and 64, who control 62% of their assets without professional assistance. Seniors over 65 control just over half (56%) of their assets.

Almost a fifth of plan participants (19%) said they’ve never even considered using a financial adviser. Across the age groups, this attitude is most prevalent among the youngest respondents. In fact, 26% of those under 35 said they did not consider using an adviser, compared with 13% of seniors.

Not surprisingly, plan balance is a factor in considerations regarding use of a financial adviser. Those with under $10,000 are the most likely to say that they have not considered consulting an adviser (25%), compared with 14% of those with at least $100,000 in plan balances.

Most plan participants identify themselves as self-directed investors, but just over one-third (35%) said adviser use is event-driven, meaning that specific financial situations—needing information about asset allocation, or the desire to save for college or retirement—could guide them to seek financial advice from a professional.

Those who do use an adviser are more apt to attribute their financial success mostly to themselves. Nearly three-in-ten (28%) said they are relying less on an adviser, while 21% said they have a portion of their investments with an adviser to compare results with their own investing.

This investment confidence comes in part from confidence in their financial knowledge and their proactive pursuit of financial information. Nearly two-thirds (62%) said they feel that much more and much better information on investments is available.

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