Deals & People August 25, 2021

A Q&A With QMA’s David Blanchett

David Blanchett, QMA’s newest managing director and head of retirement research, talks about the evolving role of DC plans and workplace investing—including the interplay of target-date funds, personalization and managed accounts.
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David Blanchett

QMA LLC, the quantitative equity and multi-asset solutions specialist of PGIM, announced in early June that it was bringing David Blanchett on board as a managing director and head of retirement research for defined contribution (DC) solutions. (PGIM is the $1.5 trillion global investment management business of Prudential Financial Inc.)

Blanchett is well-known in the DC plan industry for previously heading up retirement research at Morningstar Investment Management. The leadership at PGIM/QMA say his hiring reflects the fact that retirement income solutions are going to be the next big thing that will come to dominate the marketplace.

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Shortly after the announcement, QMA Chief Executive Officer Andrew Dyson told PLANADVISER that Blanchett’s hiring “reflects QMA’s vision for our role in the future of retirement income,” adding that “great products will need to be founded on great research, and David will be at the forefront of that.”

Dyson argued the next 10 years will see income solutions come to dominate the DC plan marketplace. In a new interview with PLANADVISER, Blanchett leaned into that suggestion, echoing the growing importance of getting DC plan investors not just to, but also through, a successful retirement.

The following is a selection of highlights from the new discussion with Blanchett, now about 10 weeks into the new gig, edited and condensed for clarity:

 

PLANADVISER: We heard previously from your new colleague Andrew Dyson about your anticipated role and responsibilities at QMA. It would be great to hear your thoughts about taking on the new job at a time when the retirement plan industry is experiencing significant change.

Blanchett: As Andrew said, PGIM and QMA definitely believe that retirement income solutions are the next frontier, especially within the DC space, and I’m excited to be working on this challenge. For some time now, there has been a lot of talk about making DC plans more friendly to retirees and to efficient retirement spending, but plan sponsors are now truly starting to push this trend forward in a big way.

Increasingly, plan sponsors want to get their people not just to, but also through, a high-quality retirement, and as a result of that, this industry is ripe for the development of new products and solutions that speak to these needs.

On a personal note, why did I make this change now? I can say that there is a lot of potential within QMA and within the broader PGIM and Prudential organization to take on these big, important challenges.

 

PLANADVISER: Do you have any words of wisdom to share with respect to successfully joining a new team such as those you worked with at Morningstar and now at QMA?  

Blanchett: Yes, that’s the key here, right? For QMA and firms like us, coordinating all the different underlying skill sets across asset management, financial planning and insurance is so important. For me, this job change is an exciting challenge and it presents an opportunity to work with some very bright people.

I’m 10 weeks in now, roughly. In a sense, the COVID-19 pandemic has made this transition a different experience than it otherwise may have been. Given the remote-first approach to work, I have at least one meet-and-greet with someone new across Prudential or PGIM almost every day, and we have been able to start building a strong rapport and a sense of excitement about our shared goals.

I have worked in settings previously where I was the only person who was remote, which presented its own challenges. Now, everyone has been working this way, so it has not been the same experience of joining a new company as I have had in the past, that’s for sure.

 

PLANADVISER: You mentioned earlier that plan sponsors want to get their people through retirement, not just to retirement. Do you have a sense for why that is? Presumably a big part of this is wanting to do the right thing for their people—but is it also to do the right thing for their businesses?

Blanchett: Oh, yes, there are many sides to this trend. For example, there is a growing understanding about the importance of economies of scale, and that midsized and especially larger plans can really take advantage of their scale. There is a growing understanding that the older population in a given retirement plan is going to own the bulk of the assets in that plan, meaning keeping them in the plan is important to maintaining hard-earned scale.

Yes, the plan sponsor knows it will carry marginal additional fiduciary risk by continuing to serve this person in the plan. However, the sponsor also knows that keeping people in the plan will ensure they maintain access to high-quality services and support—much more support than many people would be able to access in the private market. If you are in a DC plan, you are going to have an institutional fiduciary overseeing your assets, and you will have access to best-of-breed investments and administration services. If you go outside of the plan, there is a much wider array of possible outcomes, not all of them good.

Going way back, you might not know this, I actually started out as a financial adviser. I was doing individual personal financial planning, so I don’t mean to sound too skeptical. There are a lot of private wealth advisers who do a great job and who can build just as good of a portfolio and as good a suite of services as you will get in the DC space—but that is not universal. In a DC plan, there is just an extra level of oversight and a promotion and embracing of best practices.

 

PLANADVISER: What are some other ways plan sponsors can step up their game? What other points of progress are you hoping to see?

Blanchett:  There is so much to mention. For example, the core menu is not finished. After a lot of time spent refining and rationalizing investment menus in the wake of the Pension Protection Act of 2006 [PPA], I would argue there may be a need to make menus more expansive, so that they can serve new and evolving needs, including retirement income.

If you pause and think about it, the role of the core menu has shifted and evolved so dramatically over the past decade. There was all this research that came out 10 years ago to show that, if you have an overly large core menu, it will scare people away from the plan. Honestly, that was an important discovery, but it is an outdated point of discussion in 2021, given the broad adoption of automatic enrollment and the massive popularity of target-date funds [TDFs].

There has been a massive migration of assets into the default option. If you want to capture significant assets, especially for younger participants, the default investment is central. That being said, for a lot of participants, as they age, the odds of them using the default decrease dramatically. So, there is a chance for us to add other building blocks and evolve the core menu once again.

Let me also add, I am a fan of target-date funds. I think some people have a false impression that I have a negative opinion of TDFs, and I don’t. It is a fact that TDFs are a massive improvement over self-direction. On the other hand, the idea that everyone within the same five-year age band is getting the best possible portfolio is not necessarily true.

Especially as fees for advice and personalization come down, this is an area where further evolution could happen. Also, the growing focus on income and guarantees makes personalization that much more important. Simply put, the amount of assets you own will have a big impact on the recommended approach when it comes to building income guarantees, which is not a fact that is going to be addressed by a target-date fund.

 

PLANADVISER: Can you speak to the importance of research and analysis in this discussion? Another way to ask the question: How do we go from good ideas to good solutions?

Blanchett: I have met so many incredibly smart people in this industry, but I have also seen the challenges that come up when you have a very smart team go away and work in isolation. They can go into a room and solve a fancy equation and have an answer to a tough question, but people have to understand what you are doing and why. Successful solutions have to be accessible, and they have to cut through the intellectual biases that exist out there in the market.

Practically speaking, we need to create strategies and solutions that people understand—so that they can appreciate why they need them and why they should want to implement them. This part of the process cannot be overlooked. Even with TDFs, as popular and successful as they have been, some people still don’t totally understand them, and others misuse them.

What I’m saying is that thinking about how participants will react to what we are doing and recommending is really important. If people cannot see why they need something or why it will help them, it won’t be successful.

Practice Management August 20, 2021

A Timely Discussion With the CFP Board

Kim Hayes, who serves as a director for the CFP Board, talked with PLANADVISER about adviser industry turnover, the need to improve diversity and the opportunities afforded by professional certifications.
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During a recent interview with PLANADVISER, Kim Hayes, director of corporate relations for the Certified Financial Planner (CFP) Board, took time to reflect on the past 18 months, as the United States and the world have faced tremendous challenges—some caused by and others merely exacerbated by the coronavirus pandemic.

As Hayes observes, the pandemic hit working women especially hard, as women account for nearly 3.8 million net jobs lost since February 2020, according to data from the U.S. Bureau of Labor Statistics (BLS). Fast forward to August 2021, Hayes observes, and the gender disparities in the pandemic’s impact remain.

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The government statistics show that nearly all the women who returned to the labor force in June were unemployed and looking for work—that is, they were not merely sitting on the sidelines and waiting out the pandemic. They wanted to and needed to work but could not find employment before securing a new job in June.

Given her role in promoting the goals and objectives of the CFP Board, Hayes says she sees these statistics as a real wake-up call for the financial services and investment advisory industry.

“Where should women pursue stable, post-pandemic employment?” Hayes asks. “Well, those of us in the advisory industry know how meaningful a career in this sector can be, and we know the enduring power of financial advice.”

Hayes points to survey data her organization collected recently that shows more than half of female CFP professionals indicated strong career satisfaction. Additionally, they were more likely than their male counterparts to report high personal satisfaction with critical skills, including confidence in working with clients and the ability to earn client trust.

At the same time, Hayes notes, her organization’s survey data shows CFP professionals reported a 78% increase in the volume of client inquiries as the pandemic progressed. Americans have been seeking financial advice amid the pandemic and recovery uncertainty, she explains, creating opportunities for more individuals, including and especially women and people from more diverse cultural backgrounds, to join the profession.

“We have all also seen the statistics about turnover in the financial advisory industry, with as many as 40% of advisory professionals expected to retire within the next five to 10 years,” Hayes says. “With respect to my organization, we feel that the CFP designation can really be an important part of the transition to a younger and more diverse adviser industry.”

On this point, Hayes can speak from direct experience, as prior to joining the CFP Board, she was the director of financial planning at Waddell & Reed Financial Inc. in Shawnee Mission, Kansas, where she led financial planning activity and coordinated training efforts for advisers. Hayes previously served as a financial planning consultant at the firm and worked in financial planning and education planning service roles at other firms in Kansas.

Hayes earned her CFP certification in 2003 and has since been actively involved with the financial planning profession. She says financial planners who attain the CFP designation have many options, including starting their own business or joining a large service provider or a small independent firm. Increasingly, part-time and fully remote positions allow for flexibility that might be attractive to broader groups of people.

“When I started in this industry, so many people thought the only way to do business was as a sole practitioner running your own firm all by yourself, more or less,” Hayes observes. “Now, we have moved a lot more toward a team-based structure, in part because a person working by themselves just cannot scale and maintain their practice in today’s highly competitive environment. So many teams are adding new financial planning capabilities, even if that is not what the lead adviser or advisers are doing with their time. This balanced approach should help to make the industry more inclusive.”

Hayes says there’s a very strong demand in the industry for the CFP designation, and she sees two primary reasons why.

“The first is that busy and growing firms are looking for people who are willing to make a significant professional investment themselves,” Hayes says. “Going through the rigorous amount of study that it takes to earn the CFP designation really proves you have that depth and breadth of knowledge needed to serve clients in an evolving industry.”

The second, she notes, is the aforementioned concern about adviser industry turnover and a lack of sufficient succession planning.

“Firms are stepping on the gas pedal so that they can create good succession structures and keep their clients’ assets in-house,” Hayes says. “We have seen a lot of firms adding more services to meet growing client demand, such as virtual advice centers and call centers that are staffed and supported by CFPs.”

Hayes says the Regulation Best Interest (Reg BI) framework now being enforced by the U.S. Securities and Exchange Commission (SEC) has also had a growing influence on the industry.

“The demands of Reg BI really emphasize the planning aspect of the adviser-client relationship,” she says. “Being able to prove how you got from point A to point B, from the client’s situation to the actual piece of advice given, is crucial, and CFP professionals can be very helpful on that front.”

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