In Practice July 13, 2010

Custom TDFs the Prime DCIO Opportunity

Cerulli Associates contends the growth opportunity for defined contribution investment only (DCIO) asset managers lies within custom target-date funds built for large plans (those with between $100 million and $500 million) and mega plans (those with more than $500 million in assets under management).
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In the Cerulli Edge—Retirement Edition 2Q 2010, Cerulli said custom target-date funds are expected to grow rapidly within these plans, and asset managers that are properly positioned with product appropriate for investment sleeves of these custom products will reap the rewards.  

Outside of custom target-date funds, Cerulli forecasts IO opportunity within the lower part of the large-plan segment and the upper part of the mid-size plan segment (plans between $50 million and $100 million). Combined, the portions of these segments currently contain more than $25 billion in assets under management (AUM), according to the report.  

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Cerulli also believes there are targeted product openings for DCIO managers. These include the anticipation of product placement in sleeves for open-architecture, custom target-date funds (particularly in fixed investment and alternatives), the ability to address plan sponsor cost concerns with collective trust fund (CTF) strategies geared to target-date approaches, fulfillment of gaps for portfolio inflation-protection, and the design of guarantees connected to income generation from DC assets.  

Cerulli’s proprietary data estimates the IO portion of private DC assets at almost $2 trillion for year-end 2010. These assets represent 60% of the entire market for private DC, and with a five-year compound annual growth rate (CAGR) of 8%, DCIO appears to be a key component of DC asset growth.   

Cerulli said it projects that as a percentage of private DC assets, proprietary assets will drop from their 2003 percentage of 45% to an estimated 33% in 2010, while IO assets will increase from 42% to an estimated 60% during the same period.  

When analyzing providers for IO opportunity, Cerulli suggests asset managers consider that some are less likely to accommodate external managers than others and be aware of the proprietary nature of most firms’ target-date mutual funds.  

The company found that many firms may be unintentionally targeting plan segments that offer less opportunity. Forty percent of firms cited targeting smaller plans (those with assets of less than $25 million), while 37% plan to focus on mid-sized plans (those with assets under management of $25 million to $99 million).  

When Cerulli asked IO asset managers to assess the most important factors for achieving success, the majority responded that strong partnerships with DC platforms serve asset flows best. Investment performance and vehicle offerings that meet plan sponsor needs were rated 21% each as the important success factor.  

The Cerulli Edge—Retirement Edition 2Q 2010 also discusses findings on what advisers deem the most important factors in choosing a DC plan provider and adviser changes to retirement income strategies in response to market conditions.  

For a copy of the report, email CAMarketing@cerulli.com.
In Practice July 13, 2010

Some Say Financial Planners More Important Since Financial Crisis

A new national opinion poll conducted for Certified Financial Planner Board of Standards finds nearly two out of three Americans (65%) are more concerned about their finances today than they were at the beginning of the financial crisis two years ago. 

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More than two out of five Americans (43%) say financial planners are now “more important in the last two years since the start of the financial crisis,” compared to about a third (36%) who see no change, and 14% who now see planners as being “less important.” Overall use of financial planners by Americans has remained almost unchanged during the first two years of the U.S. financial crisis – starting at 29% compared to 28% today, according to a press release.   

Of those who have started using a financial planner since the start of the financial crisis, nearly a third (31%) say they have done so because “I felt like I needed more financial guidance during these difficult times for investors.” However, a bigger percentage of those in this group (44%) said they have started using a financial planner during the last two years for reasons “unrelated to the financial crisis.”   

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The survey also found almost two thirds of Americans (64%) say they are “very” or “somewhat” financially prepared for the future.  The top three financial planning issues for Americans are retirement goals and planning (30%), education funding (25%), and savings goals and planning (23%).  

Other survey findings, according to the press release, include: 

  • More than a third of Americans (37%) expect to see their personal finances improve in the next six months, versus less than half (46%) who expect to hold onto what they currently have, and 16% who expect to lose money.  
  • 80% of Americans say that Congress and regulators have not done enough “to deal with the financial market problems and their impact on American investors.”  
  • 44% of Americans expect the U.S. economy to improve in the next six months, while only 28% expect things to get worse. A smaller group (22%) anticipates no change in the economy.  
  • When asked to describe how they feel about their personal finances, the numbe one response from Americans was “cautious” (33%), followed by “calm” (26%), “concerned” (25%) and “hopeful” (25%). (Multiple responses were permitted to this question.)  
  • 38% of whites expect the economy to improve, compared to 51% of Hispanics and 74% of African Americans.  

Full survey findings are at http://www.CFP.net. 

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