The Markets January 27, 2020

401(k) Participants Were ‘Less Reactionary’ in 2019 Trading

The trend of small trades away from equities to fixed income funds seems to suggest participants were rebalancing their portfolios, not making drastic changes to their investment mix, says Rob Austin, with Alight Solutions.

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December 2019 was a light month for 401(k) trading with zero days of above-normal activity, according to the Alight Solutions 401(k) Index.

On average, only 0.012% of balances were traded daily, making December the third-lightest trading month in the more than 20-year history of the 401(k) Index.

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As was the case for most of 2019, trading inflows mainly went to bond ($193 million) and international equity ($33 million) funds. Outflows were primarily from company stock ($114 million) and large U.S. equity ($102 million) funds.

Although 2019 had only 25 days of above-normal daily transfer activity—much lower than 2018’s total of 46 days—the net trading activity was the highest Alight has seen since 2013, at 2.29%. Eighty-six percent of the trading days saw net trading activity move from equities to fixed income.

“In 2019, 401(k) investors largely took a more thoughtful and less reactionary approach to investing than in past years with an overwhelming trend of small trades away from equities to fixed income funds. This activity seems to suggest that people were rebalancing their portfolios, not making drastic changes to their investment mix. Heading into 2020, we encourage 401(k) investors to take this same, disciplined approach and keep long-term saving goals in mind rather than responding to market forces,” says Rob Austin, head of Research at Alight Solutions.

Bond ($2.4 billion), stable value ($1.2 billion) and money market ($547 million) funds received the most traded assets in 2019. Large U.S. equity ($2.1 billion), company stock ($1.5 billion) and small U.S. equity ($355 million) saw the highest trading outflows.

Still, large U.S. equity funds held more than one-quarter (26%) of 401(k) participants’ assets by the end of the year, an increase of 1.9% from the end of 2018. This was second only to target-date funds (TDFs), which held 29.3% of participants’ assets, up 1.3%. More than two-thirds of participants’ assets (68.1%) were in equity funds.

Though net participant transfers went to fixed income funds, investment returns and contributions kept TDFs and large U.S. equity funds in the top spots. Forty-seven percent of contributions ($7.1 billion) went to TDFs, and 20% ($3 billion) went to large U.S. equity funds.

Products January 27, 2020

Fidelity Launches Paperless Account Onboarding

The paperless onboarding process seeks to cut down on the time it takes to get people saving.

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The Wealthscape adviser technology platform offered by Fidelity Clearing & Custody Solutions now includes a fully digital account onboarding experience.

Lisa Burns, head of platform technology, Fidelity Institutional, says the platform’s updated and integrated workflow for opening, funding and establishing features in accounts streamlines advisers’ day-to-day work. The goal is to allow them to focus more on adding greater value for clients through activities such as goal-based financial planning, she says.

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“Time is the most valuable commodity advisers have, and more than half of advisers we surveyed said they lose out on valuable client face time because of account opening paperwork, so we completely digitized the onboarding experience to give advisers, home offices and investors a more efficient way to handle many of their everyday tasks,” Burns says.

The digital experience also simplifies onboarding for clients by reducing the volume of information they review throughout the onboarding process. Burns notes this rollout is “the first in a series of Wealthscape platform enhancements planned for 2020.”

“Adding technology that saves advisers time to our existing digital capabilities is a top priority for us, because it helps them focus more on building deeper relationships with clients,” Burns says.

The new onboarding experience is beginning to roll out now and lets advisers digitally open individual brokerage accounts, fund accounts through transfer of assets and add features such as asset movement authorization.

As PLANADVISER has reported, the use of digital and mobile technologies for employer-sponsored retirement plans continues to increase. In fact, according to a paper promoted by the Voya Behavioral Finance Institute for Innovation, plan sponsors and advisers have a responsibility to consider using websites and mobile applications that encourage better retirement outcomes.

The paper discusses how research in the field of behavioral science reinforces the concept that digital resources can have a significant effect on retirement decision-making. For example, the authors point to studies that have shown that the layout of a retirement plan website can help shape an employee’s level of investment diversification. Furthermore, the studies show, simplifying the design of an enrollment website can increase the number of workers who personalize their enrollment by 15% and increase overall plan contributions by 10%. Other findings show that presenting higher default contribution rates in an online enrollment setting can substantially increase savings rates without reducing enrollment.

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