Fidelity, Sungard Introduce New Trading and Custody Platform Services

Fidelity Investments and SunGard have announced the addition of new services to their integrated trading and custody platform for trust institutions and third party administrators (TPAs).

The new services include a directed trustee services program, a payment and reporting program for brokers who support retirement plans, and an online revenue management tool.

The Directed Trustee Services program helps TPAs that custody assets with Fidelity to streamline management of qualified retirement plans by providing access to the professional trustee services offered by Fidelity Personal Trust Company, the announcement said. Through Directed Trustee Services, plan sponsors can access fiduciary services to help reduce risk, audit expenses, and administrative costs.

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Paying Agent Services provide administrative support of contribution, distribution and loan processing, status reports on distributions, and IRS Form 1099-R tax reporting. Paying Agent Services can be bundled with Directed Trustee Services or are available on an unbundled basis, according to the announcement.

The Fidelity Institutional Broker Network is a program for broker/dealers and their representatives who service retirement plans through a TPA relationship. For broker/dealer firms, the service can act as a compliance resource and also provides automated payments of asset-based fees to broker/dealers through the NSCC Commission Settlement Service. The service also provides reporting to fund companies of broker/dealer representative relationships to the retirement plans and a Web application designed exclusively for broker/dealers.

The online revenue management tool helps TPAs monitor commission payments from multiple fund companies across the multiple retirement plans they service. Data is refreshed daily and the system confirms payments by account, position, and payment instructions and supports information searches by a number of criteria, including plan name/account number, security, broker/dealer, and payment type.

Clients can print a consolidated report directly from the revenue management system or export the information to a spreadsheet.

The Fidelity/SunGard integrated trading and custody platform utilizes the capabilities of the SunGard Transaction Network (STN).

More information can be found at www.sungard.com.

Russell Paper Outlines Retirement Income Approach

A new paper from Russell takes issue with the traditional two strategies recommended by financial advisers to hedge against longevity risk: buying guaranteed annuities and/or reducing spending should markets under-perform expectation.

In the paper, “Modern Portfolio Decumulation: A New Strategy for Managing Retirement Income,’ published in the August issue of The Journal of Financial Planning, Richard Fullmer, a senior strategist at Russell Investment Group, sets for his strategy for retirement income planning and portfolio construction and argues there should be two different strategies for acquiring wealth and one for making sure individuals get enough of a lifetime cash flow from their portfolios, which must take into account longevity risk.

The goal of asset decumulation strategies is to improve an individual’s ability to obtain a stable and steady stream of income for life from a retirement portfolio, with a secondary goal to preserve wealth for one’s beneficiaries, the paper says. In order to achieve this, Fullmer contends that longevity risk can be turned into investment risk, allowing it to be managed within an investment portfolio. This means that individuals will not have to make spending adjustments immediately and might be able to delay the use of annuities until later.

“Using this approach, it is the portfolio, rather than the investor’s standard of living, that first responds to market performance and economic conditions,” said Fullmer, in a press release about the paper. “Furthermore, it seeks to allow the investor to preserve liquidity early in retirement and purchase a desired income stream in the future. There is no doubt that annuitization offers retirees a valuable benefit that an investment portfolio cannot – a guaranteed lifetime income stream. However, annuitization may also have drawbacks.’

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Fuller does not make the case against annuities, just suggests delaying their use to “at some point in the future when it makes strategic sense.”

According to the press release, the paper provides a detailed explanation of how such a strategy could be executed. It describes a new multiple period cash-flow-based investment framework that incorporates a dynamic asset allocation strategy and uses the projected cost to annuitize the investor’s desired lifetime income stream as a hurdle for managing longevity risk within the portfolio.

“This new approach seeks to allow investors to maintain a desired standard of living while at the same time preserve their wealth for gifts or bequests,’ said Randy Lert, chief portfolio strategist at Russell, in the release. “By combining longevity and investment risk they can be managed holistically and thus more effectively. This provides an intuitive and simple way for planners and advisers to assist their clients by evaluating at any point in time whether it makes sense to continue to invest or to annuitize.’

The paper can be viewed in full here.

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