It took a catastrophic global event to demonstrate how ill-prepared many Americans are for even a brief interruption of income—including many people high up on the income scale.
The Defined Contribution Institutional Investment Association (DCIIA), the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, the Plan Sponsor University and the Retirement Advisor University on Friday held a timely webinar on the future of emergency savings.
Speakers included Tim Flacke, executive director of Commonwealth; David John, senior strategic policy adviser for AARP; and Christine Lange, head of retirement business management and customer solutions at Prudential Financial.
The trio described the economic devastation that has been wrought in the United States by the coronavirus pandemic, describing in stark terms the massive jump in unemployment that has already occurred. Yet they also voiced hope that this dire situation will lead to a fundamental rethinking of the way working Americans spend and save.
“The financial well-being of many Americans is not as strong as it appears to be or as it should be, and that fact has been made very clear in the last two months,” Flacke said. “We have literally seen miles-long lines of people waiting to get food. What is really eye-opening is that, when you look closely at the news coverage, you will see a lot of quite nice and new-looking cars in those lines. What that demonstrates is that the majority of Americans, whatever their income level, had been living very much in the present in terms of their finances.”
The panel noted that a similar phenomenon was observed during the federal government shutdown back in January 2019, but, at the time, the widespread nature of the situation was not fully appreciated.
“Many of those people who were furloughed by the federal government were well paid, but even for them, one or two missed paychecks became an economic disaster,” Flacke observed. “We have all seen the research showing as many as three in four Americans are living paycheck to paycheck. One Willis Towers Watson survey puts the figure at 40%, but that’s just for people working with the largest and most successful U.S. employers.”
Changing this situation will take years of concerted effort, the panel members agreed, but the job should be made at least a bit easier now that the coronavirus pandemic has cast so much light on the United States’ financial weak points. The group proposed that the retirement plan services industry can be the fulcrum for change, because getting people to commit to emergency savings will take many of the same strategies and solutions as it takes to get them to start saving seriously for retirement.
“One clear lesson we can bring to the table from the retirement planning perspective is that people should be encouraged to start small and to automate their savings—and we can’t make them feel daunted by saying they need to have six months’ expenses saved in cash in their bank,” Flacke said.
John noted that AARP has conducted research into three different emergency savings models—all of which can be very effective but which will also require regulatory changes and a commitment from employers and financial services providers. The first two are variations of creating after-tax savings sub accounts within existing retirement plans. The third is to use separate, parallel savings accounts at a bank or credit union while relying on payroll deferrals to automatically fund the account.
“All three models are focused on the ability to use automatic enrollment and regular, if small, contributions,” John said. “Again, one thing we don’t want to do is to structure the savings goals in a way that discourages people from participating. We want people to feel good about saving relatively small amounts in each paycheck. Unfortunately, we have found that there are regulatory complications for all three of these models at the moment. The current automatic enrollment safe harbors meant for retirement plans aren’t sufficient, and so we need to update these regulations to make emergency savings easier, simpler and cheaper. For regulators, it should not take a lot of work to do these updates, we believe.”
Lange echoed that point and said the retirement plan services industry is eager to provide emergency savings solutions, adding that plan sponsor clients are always hesitant to adopt solutions or strategies that have not been explicitly approved by regulators.
“For many workers, and not just those lower on the income scale, life is a regular string of financial stresses and emergencies,” she said. “Understanding that will help us create a better solution. Before we can prepare people for another pandemic, we need to start by helping people prepare for the episodic challenges that emerge in normal life—the flat tire, the hole in the roof, a week without pay. To do this, we can and should use the retirement plan industry’s infrastructure. It’s a very powerful system, and we need to take advantage of it.”
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LeafHouse and Empower partner on managed accounts; Pacific Funds partners with Oranj on income-focused mutual funds; American Century Investments releases online TDF tool; and more.
LeafHouse Financial is launching RetireGuide, a managed account service on the Empower Retirement platform to help retirement plan participants optimize their retirement investing strategies while reducing costs and managing risks as they save for the future.
The managed account program combines LeafHouse’s portfolio construction and manager selection expertise with Empower’s advisory services technology platform and client experience.
LeafHouse currently works as a third-party investment fiduciary with more than 400 advisers and 1,000 plan sponsors on the Empower platform. Advising individual retirement investors can now occur through RetireGuide retirement managed accounts, which are designed to provide personalized retirement planning through an analysis of an individual’s goals, demographic data and full financial picture.
“RetireGuide is designed to offer retirement advisers and their clients the ability to reduce fiduciary liability and to access bulk pricing discounts at the fund level. This service combines the strengths of Empower’s service and technology with LeafHouse’s dedicated investment team and the ability to potentially lower investment related costs,” says Todd Kading, president and cofounder of LeafHouse Financial. “We believe RetireGuide gives the adviser the tools that employers and employees need in this tough period.”
Pacific Funds Partners With Oranj on Income-Focused Mutual Funds
Pacific Funds will offer its mutual funds on Oranj, available to both 401(k) and 403(b) plans.
“Pacific Funds is one of the finest asset managers in our industry and their mutual funds with income-focused strategies make an important addition to our diverse and multipurpose platform,” says David Lyon, CEO and founder of Oranj. “The Oranj model marketplace helps financial advisers consolidate and access a variety of different investment solutions in one place. With Pacific Funds’ range of mutual funds, advisers who use the Oranj platform will have access to an expanded variety of investment solutions to serve their clients.”
Pacific Funds is a family of mutual funds designed for income generation, growth and diversification to help shareholders meet long-term financial goals. Pacific Funds’ portfolio managers include fixed income (sub-advised by Pacific Asset Management), U.S. equity (sub-advised by Rothschild & Co. Asset Management), and multi-asset (managed by Pacific Life Fund Advisors).
“In today’s volatile markets, we believe our active, disciplined process that focuses on fundamentals in selecting individual securities can be especially important in the search for yield,” says Douglas Jackson, vice president of Pacific Global Asset Management, which oversees product development and distribution of Pacific Funds. “We are excited that our partnership with Oranj will give us another platform to bring our fixed-income expertise to the marketplace.”
American Century Investments Releases Online TDF Tool
American Century Investments has created a new online tool to help fiduciaries select target-date fund (TDF) options.
“Target-Date Blueprint” is an online solution that organizes the U.S. Department of Labor (DOL) Tips for ERISA [Employee Retirement Income Security Act] Plan Fiduciaries into three steps. American Century says the tool can serve as an important component of a prudent selection process for TDFs that are used as the plan’s qualified default investment alternative (QDIA), and seek to maintain their safe harbor status. It also may reduce the potential for litigation.
The Target-Date Blueprint was built in response to adviser demand, according to Glenn Dial, American Century senior retirement strategist. “We learned that, while the DOL Tips were helpful, many clients wanted the tips organized into a framework that enabled advisers to document and implement them into a single document,” he says. “Additionally, we incorporated the tips into a forward-looking optimization process to help advisers determine which target-date funds may be suitable for a particular plan.”
“The Target Date Blueprint tool developed by American Century Investments helps plan fiduciaries fill a potential gap in the documentation of their prudent process,” says Bradford Campbell, partner at Faegre Drinker Biddle & Reath LLP and a former assistant secretary of Labor for the Department of Labor’s Employee Benefits Security Administration (EBSA). “The DOL guidance explains what the department thinks is prudent for plan fiduciaries to consider in selecting and monitoring TDFs—clearly documenting that plan fiduciaries are following the guidance that better prepares the plan for challenges, such as DOL investigations or private litigation.”
Dimensional Fund Advisors Announces Multiple Wealth Model Series
Dimensional Fund Advisors will launch its five series of Wealth Models, named Core, Core Plus, Tax-Sensitive, Sustainability and Social Wealth Models.
Each set of models provides six combinations of equity and fixed income, ranging from 100% equity to 100% fixed income in 20% increments. The new Wealth Models were designed to address a wide range of wealth goals, ranging from aggressive wealth growth to preservation of capital and purchasing power. All are available on Dimensional’s client website.
“The new Wealth Models reflect our belief system and our value-added approach to portfolio design and management—one that is holistic, consistent and based on rigorous theoretical and empirical research,” says Savina Rizova, global head of research. “We will update the allocations as needed in alignment with new research, new investment solutions, and changes in the investment opportunity set, while staying true to Dimensional Investing.”
Dimensional Core Wealth Models use Dimensional’s core equity strategies, which have a moderate focus on securities with higher expected returns. Dimensional Core Plus Wealth Models add component equity strategies and apply a stronger emphasis on securities with higher expected returns. Dimensional Tax-Sensitive Wealth Models seek to improve after-tax returns using various tax-advantaged strategies.
Dimensional Sustainability Wealth Models include funds that generally seek to reduce exposure to firms with less sustainable business practices and focus on key environmental considerations, such as greenhouse gas emissions and potential emissions from fossil fuel reserves. Dimensional Social Wealth Models include funds that generally seek to reduce exposure to firms that are involved in controversial activities, such as nuclear weapons, tobacco, alcohol and gambling.
The Wealth Models are not proposed as optimized solutions and are not tailored for specific individual investors. Professionals can apply them in their current form or customize to meet an array of individual needs and preferences.
Bloomberg Announces Details on US Multi-Asset Indices
Bloomberg has announced its US Multi-Asset Indices, comprised of Bloomberg indices across asset classes with each index constructed as a composite of at least one fixed income and one equity index.
The suite is designed to address investor demand for a centralized multi-asset index suite, with products that can be benchmarked.
“We’ve seen the growing appetite for multi-asset offerings in the market and wanted to provide investors with a thoughtful and innovative solution, utilizing Bloomberg’s existing index offerings,” says Dave Gedeon, global head of Equity and Strategy Indices at Bloomberg. “By incorporating our unique internal data, pricing, analytics, distribution and research offerings, the Bloomberg US Multi-Asset Indices provide clients with a new benchmark family to meet their evolving investment needs.”
Building on Bloomberg’s single asset indices as the foundation, the suite of 10 indices features fixed, market value and risk parity weighting plans. According to Bloomberg, these plans include fixed weight indices that are rebalanced to respective target weights; market value weights determined based on the published market value for the underlying indices on the weight determination date; and risk parity indices weights determined with the aim of providing equal risk exposure to the two underlying indices.
Additionally, Bloomberg says the US Multi-Asset Indices rebalances monthly on the first business day each month.
Securian Financial Adds Personalized Managed Accounts to Solutions
Securian Financial has introduced Target Pro Portfolios to its retirement plan investment solutions.
Target Pro Portfolios are managed accounts that leverage employee data to create personalized investment allocations. The tool uses data already provided, and employees who want to provide additional details can do so to further personalize their allocation.
“Typical managed accounts require employees to take action, and many times that just does not happen, so we’ve taken a different path,” says Steve Chappell, Securian Financial vice president for retirement solutions distribution. “We believe there’s an evolution happening where individuals of all ages value a strategy based on their unique circumstances. The no effort, reasonable cost approach of Target Pro Portfolios makes it a feasible solution to meet those new expectations.”
Stadion Money Management creates the asset allocation formula for participants using Target Pro Portfolios. Financial professionals leveraging the portfolios can choose the degree of fiduciary involvement best suited to their clients, practice and value proposition. All aspects of portfolio management are integrated with Securian Financial’s recordkeeping system.
BNY Mellon Launches Investor Solutions RIA
BNY Mellon Investment Management announced the launch of BNY Mellon Investor Solutions, a Securities and Exchange Commission (SEC)-registered investment adviser (RIA) that offers comprehensive portfolio management and investment advisory services for investors worldwide seeking outsourced investment management.
The new group combines an open-architecture approach with the proprietary investment capabilities of BNY Mellon’s eight specialist investment firms, alongside advisory services from BNY Mellon Wealth Management, and the custodial and servicing capabilities from BNY Mellon Asset Servicing. It provides investment advisory, discretionary portfolio management, analytical and infrastructure services to support client operating and governance requirements, principally to endowments and foundations, retirement plans, family offices, private wealth and intermediary RIAs.
BNY Mellon Investor Solutions will offer the following services:
Asset allocation and portfolio construction advice;
Manager research and selection;
Investment analytics;
Customized investment strategies; and
Access to trust and custody services.
Customized Portfolio Solutions
Model portfolios;
Multi-asset strategies;
Multi-manager strategies;
Overlay programs; and
Alternatives program.
Reporting to Catherine Keating, a member of BNY Mellon’s executive committee and CEO of BNY Mellon Wealth Management, BNY Mellon Investor Solutions is comprised of nearly 70 investment professionals led by Jamie Lewin, former head of product strategy and performance management for BNY Mellon Investment Management.
