Products April 13, 2023

Retirement Advisers Say Long-Term Performance Most Important for Evaluating TDFs

Four out of five advisers said investment performance over at least three years is key in picking TDFs for plan menus, according to Cerulli.

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When evaluating a target-date fund, retirement advisers consider long-term investment performance (more than three years) to be the most important factor, with 80% saying it was very important, according to Cerulli Associates research released Wednesday.

The second most important factor when considering TDFs is cost, which 76% of advisers consider very important. This was followed by 70% of advisers marking the diversification of underlying asset classes as a very important factor.

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The research comes as TDF providers saw another strong year of inflows in 2022, though slightly off from 2021, as volatility rocked the markets. Net inflows for TDFs came in at $153 billion in 2022, down from $170 billion in 2021, according to recent Morningstar data.

Advisers gave both the cost and the diversification of underlying assets greater significance than in prior years, according to Cerulli. The Boston-based consultancy suggested that advisers may be looking for a proven track record of reliable performance, given the recent market volatility and potential economic contractions.

At the other end of the spectrum, only 5% of advisers said environmental, social and governance factors were important when evaluating TDFs for plan inclusion. More than half of advisers (52%) even said ESG was not important.

Advisers also reported that IRA rollovers are a frequent discussion topic with DC plan participants and advisers. As part of DC plan advisers’ business models, capturing rollovers is still an essential part of the work.

Slightly fewer than half of advisers (48%) agreed with the statement, “DC plan clients often ask me about IRA rollover decisions,” while 24% strongly agreed. One-third of advisers (33%) agreed that, “IRAs are a better vehicle to implement retirement income strategies,” and 18% strongly agreed.

Some advisers, however, expressed concern regarding the fiduciary liability that can accompany rollovers. 26% agreed and 5% strongly agreed that fiduciary issues in advising on which IRA to roll into is a factor in the discussions. Concerns could be driven by increased regulatory scrutiny of plan-to-IRA transactions, according to the Cerulli research.

Regulations that might be top of mind for advisers include the Department of Labor’s Prohibited Transaction Exemption 2020-02 that took effect in June 2022, according to Cerulli. PTE 2020-02 lays out several requirements for providing fiduciary investment advice, including advice to roll over a retirement plan account into an individual retirement account.

Products April 13, 2023

Investment Product & Service Launches

FuturePlan/Ascensus and Voya launch employer-aggregated plan; Broadridge and Paychex partner on small 401(k) retirement plan solution; Savvy Wealth launches direct indexing investment product; and more.

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FuturePlan/Ascensus and Voya Offer Employer-Aggregated Plan

FuturePlan by Ascensus, a third-party retirement plan administrator, and Voya Financial Inc., have launched an employer-aggregated plan, with LeafHouse Financial serving as the investment management provider.

The new offering will be called FuturePlan EAP and is designed to ease administrative burdens and limit fiduciary risk to employers while providing retirement plan access to more savers, the companies announced. The offering will be backed by service and onboarding teams, and plans with fewer than 10 participants will be able to get plans up and running quickly with “minimal hassle,” according to the firms.

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“We’re excited to expand upon our successful relationship with Voya to deliver this affordable retirement plan option to an even broader group of plan sponsors and participants,” Kasey Price, president of FuturePlan, said in a statement. “Everyone should have the opportunity to participate in a high-quality, well-managed retirement plan that offers the flexibility, protection, and value that savers want and deserve.”

Voya, a health, wealth and investment company, will serve as recordkeeper; FuturePlan will be the TPA and 3(16) service provider to administer the plan; and LeafHouse will provide 3(38) investment management services.

Participants in the plan will be offered Voya’s MyCompass Index—a target-date fund designed to address the individual needs of plan participants.

Broadridge, Paychex Partner On Small 401(k) Startup Plan

Broadridge Financial Solutions Inc. and payroll and small retirement plan provider Paychex Inc. have partnered on a turnkey 401(k) startup solution for advisers to help launch and manage smaller retirement plans.

“[The SECURE 2.0 Act of 2022] has created an opportunity for advisers to support the increasing demand for new retirement plans, particularly with small businesses,” John Faustino, head of Broadridge’s fiduciary training business, said in a statement. “This new platform combines the power of two established retirement processing leaders to meet the needs of start-up plans and all their unique characteristics.” 

This solution is designed to give advisers tools, analytics and investment options to create, manage and service a small or startup retirement plan. The offering is also built to be a cost-effective, open-architecture solution that allows for quick plan setup and a dedicated adviser support team, according to the New York state-based firms.

The small retirement plan offering is hosted by Paychex and integrated with Broadridge’s custodial services and trading platform, according to the announcement. The solution provides advisers with access to more than 30,000 mutual funds, exchange-traded funds and collective investment trusts to build investment strategies according to plan sponsor and participant needs. Advisers can also choose to use an interactive dashboard from Broadridge that aggregates all their plans’ data in order to manage the plan and participant performance.

RIA Savvy Wealth Rolls Out Direct Indexing Product

Digital registered investment advisory Savvy Wealth Inc. has launched a direct indexing solution for advisers to offer tax-optimized, risk-adjusted and personalized investment portfolios.

Savvy Direct Indexing will join a trend of direct indexing investment options available to financial advisers and their clients. The investment building tool is built for advisers to create tax-efficient, values-aligned portfolios for high-net-worth clients’ preferences, including environmental, social and governance investment choices.

“The age of personalization is upon us, and off-the-shelf index funds are largely ill equipped to meet the complex needs of high-net-worth investors,” Ritik Malhotra, co-founder and CEO of Savvy, said in a statement. “With Savvy Direct Indexing, our advisers can help clients achieve diversified exposure while proactively managing for tax liabilities, concentrated positions, ethical convictions, and more.”

Savvy currently has a team of eight advisers; new advisers who partner with the firm receive equity ownership similar to tech industry employees and founders, according to the New York-based firm.

Nestimate Launches In-Plan Retirement Income Software

Nestimate Inc., a software analytics platform, has introduced a new tool called “Nestimate” designed to help plan sponsors and plan advisers overcome the “initial hurdles of in-plan retirement income solutions.”

“[One of the] major hurdles I see is the newness of this market,” says Kelby Meyers, CEO of Nestimate. “These new in-plan solutions are coming out, and advisers in the 401(k) space traditionally did not have these types of solutions to deal with. Those that are curious about implementing [retirement income solutions] are also concerned about not getting sued. … Our software can be highly supportive of this fiduciary due diligence process where [plan advisers] can have a high level of confidence with their selection.”

The new software includes a product recommendation algorithm that helps advisers, consultants and plan sponsors offer suitable retirement income options to their participants. Additionally, the tool compares the various fees involved in different income solutions and ensures that fiduciaries are adhering with SECURE Act and SECURE 2.0 Act requirements.

“We are at the precipice of a new era in retirement,” Meyers said in a statement. “When the 401(k) was created, it was designed to supplement a pension plan, which provided a guaranteed income for life. Retirees today are the first generation facing the proposition of retiring without this fundamental building block and are fearful that Social Security won’t be enough. It is our belief that it is prudent to evaluate the participant’s longevity risk in respect to their ability to meet income needs in retirement.”

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