The Markets December 28, 2015

Advisers Conducting More RFPs Than Ever

More than 75% of asset managers expect to see an increase in RFPs, RFIs, and due diligence questionnaires in the next 12 months, according to Cerulli Associates. 
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A new report from Cerulli Associates finds asset managers are receiving more formal requests for proposals (RFPs) than ever before, especially from investment consultants and registered investment advisers (RIAs) hoping to gain tighter control of client portfolios.  

The push from RIAs towards the “rep-as-portfolio-manager” (RPM) model makes sense, Cerulli says, given assets managed by this category of adviser grew year over year by 6.3% through the end of the third quarter of 2015—despite serious market volatility. This stacks up against an average growth rate during this time period of 2.9% for all managed account products. Such strong growth is obviously enticing, but Cerulli warns the RPM model is far from the most efficient approach to advising. 

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“Wirehouse advisers have flocked to the RPM platform to reassert control over the portfolio construction process,” Cerulli explains. This has helped fuel the trend of asset managers “witnessing much higher volumes and increased complexity in RFPs, requests for information [RFIs], and due diligence questionnaires.”

Cerulli finds advisers (and other investor types) today routinely file 50-page RFPs, diving deep into such topics as risk control and investment procedures, “a substantial jump from 10 or so pages a few years ago.” The report further shows both large and medium/small managers anticipate a 13% jump in RFIs during 2015, while 31% and 18% of large and medium/small managers, respectively, expect a “significant increase” in that time period.

NEXT: Where the interest lies 

“Some RFIs are a combination of ad hoc questions and multiple pages of standard questions,” Cerulli notes. “Others may be very specific to a manager’s general expertise in a particular area. For instance, one manager whom Cerulli interviewed said that they are receiving multiple requests associated with their firm’s commitment to socially responsible investing.”

According to Cerulli , “almost all managers surveyed report that they completed RFPs for investment consultants, private defined benefit, and endowment and foundation channels,” while fewer answered formal questions from bank trusts, insurance general accounts, or family offices. Over the next 12 months, more than 70% of managers Cerulli surveyed expect to see an increase in RFPs for mutual fund and variable annuity sub-advisory arrangements from investment consultants and RIAs.

Cerulli concludes sub-advisory relationships “continue to grow among asset managers that possess niche expertise such as alternatives or real estate.” At the same time, investment consultants are having a greater influence on mandate decisions, “coinciding with firms’ expectations for more RFPs originating from these professionals.”

“With the migration of financial advisers toward the RIA channel and a desire for these advisers to vet managers, Cerulli expects that more RFPs will come through RIAs than broker/dealers over the next three years (72% versus 54%),” the report concludes.

More information on obtaining Cerulli research is here.

Client Service December 28, 2015

Financial Wellness Programs Gain Traction

Retirement plan advisers are beginning to consider financial literacy and wellness programs for plan participants.
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Financial literacy and wellness are closely related, and both can affect how a retirement plan participant manages personal finances—and how finances are managed has a direct impact on preparing for retirement.

Most workers (95%) responding to a LIMRA survey said they believe financial literacy is important, but their takeaways can vary. Just one third (35%) feel they are moderately or extremely knowledgeable about financial products and services, and only 28% indicated they are very confident in their abilities to make important financial decisions.  

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Most employees said retirement was their top financial concern, followed by budgeting and managing debt, investments, overall financial planning, insurance, college planning and tax planning, according to Four Seasons Financial Education, a financial wellness and education services provider. 

One problem plan sponsors and plan advisers need to face is the generally low level of financial literacy among Americans, even those who contribute to a 401(k) plan or other workplace-based retirement account. In a study by the National Association for Retirement Plan Participants (NARPP), fewer than half (49%) of participants correctly answered eight basic questions to assess financial literacy. 

Think someone needs to be a chief financial officer to score well on such a test? Think again. In a survey of LinkedIn users, more than a third of respondents who identified themselves as chief financial officers, chief executives or chief operating officers did not answer all five financial literacy questions correctly.  

Financial wellness through workplace programs has been gaining traction over the last year or so. Aon Hewitt found that a growing number of employers realize basic money management plays a critical role in an individual’s financial well-being. About one-quarter of employers say they’re likely to provide some assistance to employees to help with budgeting, with the goal of making sure workers are able to manage their daily living expenses.

NEXT: Ways to implement financial wellness

Plan sponsors are beginning to realize that the best-designed plan won’t work to its fullest if workers are hampered by loans and poor financial habits.

Helping a workforce learn to handle finances can raise productivity. Financial Finesse, which provides workplace-based financial education, found in a study that 85% of employees feel some financial stress, and according to Pew Research, at least four in 10 employees are stressed about an approaching retirement, usually because they have not saved enough. A study by the Society for Human Resource Management found that 85% of employers believe financial stress lowers productivity.

PwC, the professional services network, points out solving an employee’s financial issues can also help to solve his or her health issues as well, potentially even lowering a company’s health care costs in the long run. In fact, according to Financial Finesse, health care costs for employees who participated in a financial wellness program dropped by an average 4.5%. Costs for non-participants rose by an average 19.4%.

Typically, financial wellness programs are paid from the company’s general budget, but if plan sponsors need another way, they might look in the Employee Retirement Income Security Act (ERISA) or even their own summary plan description (SPD). Many qualified plans are designed to permit the use of plan assets for some education programs, and ERISA doesn’t frown on the practice, according to Four Seasons Financial Education.

One consideration, when implementing a financial wellness program, is that some participants may perceive such programs to carry a stigma. Jellyvision, a provider of interactive employee communication software, found in a survey that some workers believe attending a financial wellness classes might indicate a lack of financial fitness. A benefits communication specialist with the firm said he suspected there might be barriers to participating in financial wellness programs. “We know [employees] don’t like sharing health care needs with coworkers and employers, and we wanted to see if that applied to financial needs.”

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