Client Service July 29, 2016

Steps to Improve 403(b) Plans

While Rocaton Investment Advisors strongly advocates for 403(b) plans to consolidate recordkeepers, even those that don't can improve their plans.
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For 403(b) plans that haven’t yet embarked on fund and provider consolidation, there remain opportunities to build participant-friendly and cost-effective plan designs, a paper from Rocaton Investment Advisors suggests.

Diane Improta, managing director at Rocaton Investment Advisors in Norwalk, Connecticut, says Rocaton is hoping plan sponsors who read the paper will embrace the idea of fund and provider consolidation as a way to improve outcomes for participants, and to maximize participant retirement readiness and cost-effectiveness of their plans.

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For those who haven’t consolidated providers, there are still best practices to improve outcomes for participants. Improta suggests plan sponsors consider automatic enrollment and deferral escalation, stretching their match formula and implementing strategies to reduce plan leakage. 

According to the paper, fiduciaries to Employee Retirement Income Security Act (ERISA)-governed plans should be diligent in fulfilling their fiduciary duties, documenting processes, meeting regularly and adhering to plan documents. Improta tells PLANADVISER many non-ERISA plans, such as those in the public higher education market, have adopted ERISA best practices.

As for fund consolidation, Improta says 403(b) plan sponsors can take baby steps. They can eliminate redundancies in their investment lineup, embrace open architecture and use funds not proprietary to their recordkeepers. Plan sponsors should look for quality investments and compare costs.

For plans with individual annuity contracts, Improta says some recordkeepers are encouraging plan sponsors to change contract terms and embrace group contracts. “Some may say it’s self-serving. By having an individual contract, a participant is promised a certain rate of return, but that doesn’t come without a cost,” she says. “Plan sponsors have to recognize legacy contracts exist, and if they adopt group contracts going forward, it’s only for dollars going forward.”

Improta suggests shutting down individual contracts to new assets. If the plan has money tied up in individual contracts, it will affect the fees the plan sponsor will be able to negotiate. “Moving to a group annuity will eventually fix the problem,” she says.

While these are ways to improve 403(b) plans and participant outcomes, still Rocaton suggests those who haven’t consolidated providers should consider doing so. “Those that have done a consolidation have made great accomplishments,” Improta contends.

“For plan sponsors that haven’t done this, they should be focused on improving participant outcomes,” she concludes.

Rocaton’s paper, “Overcoming Challenges in the 403(b) Tax Exempt Market,” is here.

Products July 28, 2016

Investment Product and Services

 Vanguard Closes Dividend Growth Fund; Morningstar Expands Commodity Research Into Oil, and more.

 

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Vanguard Closes Dividend Growth Fund

Effective immediately, Vanguard will curb its Dividend Growth Fund, the company announced.  

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The fund no longer will accept new accounts, but existing shareholders may continue to invest without limit. Vanguard says the move is an effort to restrict cash flow in order to maintain fund assets at reasonable levels.  

The $30 billion fund’s previous performance record against a relevant dividend benchmark and peer funds has resulted in strong cash flows and asset growth, the company says. In the past six months, the fund has generated an additional $3 billion in net cash inflows. The past three years has seen the funds’ assets nearly double.  

“Vanguard is proactively taking steps to slow strong cash flows to help ensure that the advisor’s ability to produce competitive long-term results for investors is not compromised,” says Vanguard CEO Bill McNabb. “We have long been committed to protecting the interests of our funds’ shareholders, and demonstrate this conviction by closing or restricting funds to stem further growth.”   

In addition to the Dividend Growth Fund, Vanguard has closed or restricted several other funds. Vanguard Capital Opportunity Fund, PRIMECAP Fund, and PRIMECAP Core Fund are closed to new investor accounts, except for specified retail clients. Vanguard Convertible Securities Fund and Vanguard Wellington Fund continue to be closed to some new institutional accounts.

NEXT: Morningstar Expands Commodity Research Into Oil

Morningstar Expands Commodity Research Into Oil  

Morningstar, Inc. has expanded its commodity research into the oil markets and has appointed Sandy Fielden as director of research, commodities and energy.  

Morningstar added energy, oil, gas, and commodities data and analytics to its lineup of global investment research and data offerings in 2009 with the acquisition of Logical Information Machines (LIM), rebranded in 2011 as Morningstar Commodity Data, Inc. Fielden's appointment enables Morningstar to provide clients with in-depth analysis of the oil markets, and complements its research offerings in power and gas.  

Fielden has spent more than 30 years in the oil and gas industry. He recently served as director of energy analytics for RBN Energy. Before joining RBN in 2012, Fielden was vice president of data services for Allegro and served for more than six years as vice president of energy products and services for Logical Information Machines (LIM).  

"Sandy is a respected analyst in the commodities space, and we are very pleased to bring him on board to round out our team of commodities analysts," says Travis Nadelhoffer, global head of commodities and energy for Morningstar. "Sandy's broad knowledge of energy markets and ability to communicate about complex industry topics will further enable Morningstar to provide clients with timely, valuable insights into the market fundamentals that underpin their business."

Morningstar added oil, gas and energy analytics to its lineup of industry data in 2009 with the acquisition of LIM, which was rebranded in 2011 as Morningstar Commodity Data Inc.  

NEXT: Schwab Offers Fund Tracking the S&P 500 Equal Weight Index

Schwab Offers Fund Tracking the S&P 500 Equal Weight Index  

Index Funds has announced the availability of Index Funds S&P 500 Equal Weight No Load shares at Charles Schwab & Co. and Charles Schwab Bank for individual investors, advisers, retirement plans and third-party administrators.  

The fund aims to track the total return of the S&P 500 equal weight index before fees and expenses. Its ticker symbol is INDEX.  

“These are historic times,” says Michael Willis, president of Index Funds “There is a global realignment underway and the landscape of investing is reshaping right before our eyes. We foresee a day when Wall Street is dominated by low-cost index funds.”  

NEXT: People’s United Acquires Investment Manager Gerstein Fisher

People’s United Acquires Investment Manager Gerstein Fisher    

People's United Bank, N.A. announced today that its subsidiary, People's Securities, Inc., has entered into a definitive agreement to acquire Gerstein Fisher, a $3 billion, New York City-based investment management firm serving individuals and families, institutions, and third-party platforms.    

Gerstein Fisher manages assets using a quantitative Multi-Factor approach, which structures portfolios to overweight the factors that academic research has identified as having the potential to deliver enhanced returns.Gerstein Fisher's Founder and CIO, Gregg S. Fisher, will join People's United as head of Quantitative Research and Portfolio Strategy. 

"Gerstein Fisher's client focus, quantitative portfolio management and well-rated mutual funds complement People's United's offerings and expertise," says Galan Daukas, Senior Executive Vice President, People's United Wealth Management. "In addition, our partnership will generate excellent opportunities for shared growth throughout our collective geographic footprint." 

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