Investment Survey - Putting the Pedal to the Mettle

Advisers look beyond performance in making fund selection but not much further

By Alison Cooke Mintzer See Archive >

Today’s open-architecture environment “norm" affords plan sponsors and retirement plan advisers alike near untrammeled access to a vast array of investment choices. Buoyed by the recent market resurgence, fund complexes once more are flush with cash and apparently willing to spend it in the service of gaining the attention of advisers who, in turn, can help those offerings gain access to retirement plan platforms.

That being said, a recent PLANADVISER survey of nearly 500 advisers found that what matters most—what seems almost to matter only—is performance.

In fairness, while performance—more specifically, performance versus benchmarks and performance over time (five years)—clearly dominated the attention of adviser respondents, that was not the sole criteria. Manager tenure—which admittedly contributes mightily not only to performance, but also to the consistency of that performance—was cited by two-thirds of our survey respondents. A focus on performance consistency also was evidenced in the degree of attention to style drift.

However, adviser respondents also were clearly attentive to the specific influences of the Employee Retirement Income Security Act (ERISA), and the attendant fiduciary obligations. Fee structure for the plan was cited more frequently than style drift by survey respondents, and plan demographics were also prominent in the ranking.

Still, with the thousands of funds available to retirement plans, how can an adviser best determine the appropriate mix of funds and fund characteristics? How can that mix be adequately monitored and maintained?

The challenge lies not in the paucity of data, but in its proliferation. There are, of course, a multitude of resources for an adviser to use, including stand-alone investment analytic offerings (see “Finding a Good Fit,’ page 62); resources offered through broker/dealers; and an expanding variety of tools available through retirement plan recordkeepers, fund families, and their wholesalers. The potential of the combination—properly managed and balanced—provides the committed adviser with a unique perspective to appreciate and evaluate fund providers and their offerings.

Advisers surveyed keep themselves busy monitoring fund families; they actively monitor an average of 25 and a median of 15 fund families, choosing to work with an average of about 18 fund families and a median, and thus more common, universe of 12.

Asked what type of support material, beyond investment performance, they relied on regarding those investment funds, the most common answer was some other sort of quantitative data surrounding an investment, including the use of investment analytic tools (primarily Morningstar, Lipper, and Zephyr), analyst reports, expenses, fact sheets, manager commentary, and prospectus information—all of which support the prominent focus on tenure, style drift, and fees cited above. However, more than one in 10 told us that they do not rely on any other support material regarding funds. Further, when we asked plan advisers what types of support material they would like but do not currently have access to, almost half (42%) said, “Nothing.’