In Practice June 20, 2013

Under-40 Is Untapped Market

Fewer than 20% of investors under the age of 40 feel they received adequate financial advice following a recent life event. 
Reported by

According to research from Cerulli Associates, investors under the age of 40 are often overlooked because of the heavier focus on Baby Boomers, said Kevin Chisholm, associate director at Cerulli. “However, these investors are the key to financial services firms’ long-term success,” Chisholm said.

In the second-quarter issue of “The Cerulli Edge-Retirement Edition,” the Boston-based global analytics firm takes a close look at the characteristics of investors under 40. “Financial providers need to better recognize and identify when these young investors hit various life stages and provide more advice and guidance,” said Roger Stamper, analyst at Cerulli.

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“The most significant financial decisions made by households typically occur well before the age of 40,” Stamper noted. “The multitude of life events taking place during these years is likely to dictate younger investors’ interactions with financial providers as they progress through various life stages.” When people make important life decisions without adequate advice, they may find themselves later burdened by these uninformed choices, Stamper said. Later on, they may wish they had received more help at the time

Asset managers and recordkeepers can see this advice gap as a market opportunity, Cerulli said in the report. By providing investors with standard checkups before big life events, advisers will be able to help them more easily navigate these times.

Other findings in the report are:

  • Most successful strategies used to engage investors under the age of 40;
  • Best approaches for recordkeepers to encourage savings among investors under the age of 40;
  • Household balance sheet by age range;
  • Households’ willingness to pay for advice by age range; and
  • Life event with previous 12 months by advice sufficiency and age.

More information on the report, including how to purchase a copy, is at Cerulli’s website.

Products June 20, 2013

Northern Trust Launches DC Tracker

Northern Trust Corporation has rolled out its Defined Contribution Tracker, which serves as a barometer for the participant asset flows of defined contribution (DC) retirement plans.
Reported by

Northern Trust said the Tracker will analyze data from 85 retirement plans in the United States with daily valuation, representing approximately 1.5 million participants and $190 billion in market value, a subset of the total DC assets managed or serviced by the company.

As an example of its capabilities, the Tracker showed that in 2012, participants lightened up on U.S. equity investments even as the Russell 3000 Index of U.S. stocks gained 16.4% for the year. U.S equities remained the largest asset class at 31.1% of holdings, but fixed income saw inflows of 9.2% for the year despite lower yields, as DC investors looked for safe havens from volatility and uncertainty in the equity markets.

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“Our tracker information, combined with market performance data, reinforces why it is important that DC participants stay the course to meet their long-term investment goals,” said Jim Danaher, managing director of Defined Contribution Solutions at Northern Trust. “At the same time, we can see that more DC investors are participating in positive trends such as reducing their ‘home country bias’ by diversifying into international equities, and increasing allocations to target retirement date funds.”

Target retirement date funds dominated asset inflows in the DC plans tracked by Northern Trust, growing from 11.9% to 14.6% of participant allocations during 2012. International equity grew from 5.9% to 7.6% of allocations in the Tracker universe.

“As the preferred qualified default investment of most DC plans, target retirement date funds have benefited from the increased adoption of auto-enrollment and other automated features, and we anticipate  participant outcomes will show potential improvement through the use of these professionally managed investment solutions,” said Susan Czochara, senior product manager in Defined Contribution Solutions. “Investors are also taking advantage of the expanding investment universe through exposure to broader international equity benchmarks that incorporate the full ex-U.S. global equity opportunity set, further diversifying their sources of risk and return.”

The Defined Contribution Tracker will be published annually using year-end data aggregated from DC retirement plans with daily valued assets under custody at Northern Trust. More information about the Tracker can be found at www.northerntrust.com.

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