Products & Services December 5, 2024

Empower to Offer Income Products From Allianz, Putnam and TIAA

The country’s second-largest recordkeeper adds more annuity retirement income products, including its first on-platform fixed-index annuity.

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Empower has further expanded its investment offerings that leverage annuities to create a pension-like paycheck for participants.

On Thursday, the recordkeeper announced the addition of income options from Allianz Life and Putnam Investments, a Franklin Templeton company, which is leveraging TIAA’s fixed annuity option.

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The Putnam Retirement Advantage Income Series of target-date funds is trusteed by Great Gray Trust Co. LLC and is available to plan sponsors and their participants through a TDF. The guaranteed income is a conversion option provided by TIAA.

Allianz Lifetime Income+ Annuity will be available at Empower, beginning on January 1, 2025, through Empower’s advice and planning solution, My Total Retirement, or through retirement managed accounts with advisers. Additionally, in early 2025, plans will be able to access T. Rowe Price’s investment offering within Empower’s managed account solution with the option to include Allianz Lifetime Income+.

The announcement adds to in-plan and out-of-plan retirement income options Empower announced in March. Those included target-date-fund options that include an annuity-backed lifetime income withdrawal benefit, along with access to an institutionally-priced annuity marketplace.

“Partnering with Allianz Life and Franklin Templeton and adding more products like these to our current suite of income offerings will help provide confidence to many individuals as they prepare for the futures they’ve worked so hard to achieve,” Rich Linton, Empower’s president and chief operating officer, said in a statement.

The Putnam and TIAA TDF option is designed to build up savings over the course of a worker’s lifetime while also helping to solve for guaranteed income once they retire, Brendan McCarthy, head of retirement investing at Nuveen, a TIAA company, wrote via email.

“Target-dates have done a great job of getting the American worker ‘to retirement’—this next generation of annuity target-date funds does a great job of getting the American worker through retirement by providing the option of income in retirement that they can’t outlive,” he said.

TIAA’s Secure Income Account annuity gives participants the option to annuitize, but does not require it, he noted.

The Allianz product allows participants to adjust the income they seek from the annuity and to maintain cash access to the value of the annuity, according to the firm.

“As the only in-plan annuity on Empower’s platform designed as an individual contract, Allianz Lifetime Income+ ensures seamless portability options without any changes to fees, features, or benefits,” Allianz wrote in a statement.

Morningstar Inc. will be behind the investment strategies in the managed accounts and adviser-managed accounts administering the investment.

Empower is the second-largest recordkeeper for defined contribution participants with 17.4 million, according to the 2024 PLANSPONSOR Recordkeeping Survey. Fidelity Investments is the largest with 31.8 million. PLANSPONSOR is a sister publication of PLANADVISER.

Separately, on Thursday, Nationwide announced a new digital tool for participants to consider their retirement income strategy and plan. Its “My Income & Retirement Planner” will give a “chance of success” score on obtaining the right amount of retirement income and will be able to review and compare withdrawal strategies.

The tool will be available to the roughly 2.7 million participants on Nationwide’s recordkeeping platform.

Correction: clarifies the offering for the Putnam income product.

Data & Research December 5, 2024

Retail Investing AUM Will Likely Slow in Next 5 Years, But Sales Will Rebound

A forecast from ISS Market Intelligence shows overall retail investment assets down in the next five years, but with product shifts helping to combat years of fee compression.

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Retail investing asset managers are projected to see assets under management grow 7.1% on an annualized basis over the next five years, hitting $43.6 trillion by 2029, according to a new report from ISS Market Intelligence.

That is a slowdown compared to the five years from 2020 through 2024, which will likely see annualized growth of an estimated 8.7%, according to the report by the data analytics firm that, like PLANADVISER, is owned by ISS STOXX.

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But while total AUM growth may slow, managers are poised to see improved sales due to increased investor interest in active exchange-traded funds and private markets, as well as a return to strength for areas that had been lagging, including bonds and non-U.S. equities.

“As lower yields reduce the appeal of holding cash, organic growth is expected to accelerate slightly,” Christopher Davis, ISS Market Intelligence’s U.S. head of research, wrote in an analysis of the data. “Moreover, with most capital market forecasts anticipating a continued bond market recovery and a bounce back in non-U.S. stock markets, managers can expect stronger growth in places where it has been scarce.”  

ISS MI forecasted that organic growth—or flows relative to beginning-period assets—will rise 1.7% on an annualized basis for the next five years, compared to an estimate of 1.5% growth over the last five years. While fee compression puts that growth lower than historical levels, the increase will translate to $2.8 trillion in new sales, an estimated $1.3 trillion more than in the prior half-decade.

On the one hand, asset managers will see growth in cheaper, more efficient investment options such as exchange-traded funds, with some fees being made up with an increased interest in actively managed versions. Meanwhile, a rise in interest in more personalized investment options, such as separately managed accounts and diversification into alternatives, should help with sales growth.

What to Expect for ETFs, Mutual Funds

In terms of ETFs, ISS MI forecasted that actively managed versions will continue to get attention, with market share rising to 5% in the next five years from an estimated 3% in the five years leading up to 2024. Meanwhile, passive ETFs are forecast to grow to 35% of the market by 2029 from 31% in the period leading to 2024.

ISS also noted in the report that the lines have begun to blur between active and passive ETF management. For instance, there are more funds that track benchmarks created by an active manager. The more “active” the ETF, the higher the fees charged, according to ISS MI data.

On the flip side of that trend, mutual funds—which typically cost more than ETFs—are set to lose market share in both actively managed funds (39% of market share through 2029 from 44% through this year) and index funds (21% in the next five years from 22% in the five years through 2024).

“With fund buyers seeing the mutual fund as the better mousetrap in fewer and fewer circumstances, ISS MI expects the vehicle to see continued market share losses over the next five years,” researchers wrote.

Finding the Right Structure for Alts Investing

Meanwhile, retail investors continue to be interested in alternative investments, including the trending area of private markets. The vehicle to get them there, however, continues to be a challenge for asset managers, according to ISS MI.

Popular liquid alternatives for investment by asset flow have included leveraged, or inverse trading, option hedging and digital assets. But more recently, managers have been developing semi-liquid options that can be more palatable to retail investors—including for private market investing.

“Except for the ultra-wealthy, access to alternatives historically has been limited to mutual funds and ETFs,” the researchers wrote. “Today, semi-liquid structures like interval funds and business development corporations (BDCs) are opening the door—at least a crack—to private markets, particularly private credit, for a wider audience.”

This shift to privately held firms would be helped by the ISS MI forecast of U.S. equity returns falling by more than half to just 5.6% in the next five years until 2029 from an estimated 12.1% in the five years through 2024. That drop in expected returns goes across allocated investments, alternatives and commodities, according to ISS MI. Returns are projected to be better for international equities, taxable bonds and tax-free bonds.

“Tomorrow’s fund buyers will gravitate to product types that either make investing cheaper and more efficient (ETFs), more personalized (SMAs), or better diversified (private market vehicles),” Davis wrote. “While there will be many winning strategy options, all of them will require managers to adapt their investment and distribution strengths to this reality. Some will move up the value chain and partner with advisory firms, while others may go a step further, transforming into full-blown distributors or wealth managers themselves.”

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