The Markets October 31, 2008

Managed Account Assets at $1.8T

Total managed accounts assets reached $1.85 trillion through the first half of 2008, according to the annual report “Cerulli Quantitative Update: Managed Accounts 2008.″
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Of the five fee-based programs that make up the managed account universe, mutual fund advisory programs experienced one of the sharpest market share hikes at 27% over the past five years, while separate accounts experienced the most pronounced drop-off at nearly 12%.

According to Cerulli, growth rates for separate account consultant programs—the largest segment of the industry—have been impacted more than other managed account segments because of the recent market volatility, which has lead to more conservative projections by Cerulli analysts compared to previous years.

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These programs are expected to hold nearly $874 billion in total AUM by year-end 2012.

Growing an average above 26% a year since 2003, mutual fund advisory programs generally outpace the growth in the long-term mutual fund market and are one of the primary drivers to the overall success of managed accounts, according to Cerulli.

“We expect further growth in this important managed account segment as advisers, investors, and sponsors continue to embrace the benefits of embedded advice, built-in portfolio diversification, and asset-based fees,” says report coauthor Emily Tillman.

Data & Research October 31, 2008

NIRS Warns DB to DC Move Can Increase Costs

Research by the National Institute on Retirement Security (NIRS) suggests freezing a defined benefit pension plan might not reduce costs.
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The research brief says freezing the DB plan in favor of a defined contribution plan could involve increased costs, reduced benefits, or a combination of both. “Look Before You Leap: The Unintended Consequences of Pension Freezes,” specifically says that freezing a DB plan and moving to an individual defined contribution (DC) plan can:

  • increase costs to employers and/or taxpayers due to higher costs of operating two plans, erosion of economic efficiencies, and front-loaded contribution requirements;
  • further exacerbate retirement insecurity concerns, which in turn can hamper worker recruitment and retention effort, result in higher turnover rates, create labor shortages, increase training costs, and lower productivity levels.

Additionally, the brief indicates that the replacement DC plan typically provides reduced benefits. As a result, fewer and fewer workers will receive adequate income in retirement.

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The brief cites the case in West Virginia, where the state, concerned that insufficient retirement income would require some form of governmental assistance—such as increased retirement benefits, welfare, or Medicaid—”unfroze” the DB plan to ensure adequate, secure retirement income. Reopening the DB plan is estimated to save the state $22 million (see WVA DC to DB Migration Could Mean Big Savings).

The full research brief can be accessed at www.nirsonline.org.

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