Data & Research March 31, 2010

Managed Accounts Recovering from Market Turmoil

As managed account programs make a comeback after taking a hit during the downturn, Cerulli Associates sees the most growth in mutual fund advisory programs, fueled by 401(k) rollovers.  
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The managed account industry saw more than $150 billion in net flows in 2009, including $56 billion in Q4 of 2009, according to a recent Cerulli report. Those inflows and the market rebound brought the managed account industry back to where it stood in 2007.

Cerulli said that fee-based programs are capturing a larger share of assets from investors relative to the total mutual fund industry. Long-term mutual fund flows as a percentage of assets were 1.5%, while the managed account industry experienced flows of 3.1% (though managed accounts have a much smaller base of assets).

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In Q4 of 2009, most types of programs recorded net flows as a percentage of 3% of assets—except for separate account consultant programs, which had outflows of $3.7 billion. Separate account programs suffered the most amid the market downturn because the market ups and downs exposed the inflexibility and lack of diversification of those programs, according to Cerulli. In addition, separate accounts have limited appeal outside the wirehouse channel, contributing to their slower pace of growth.

Cerulli expects most managed account programs, with the exception of separate accounts, to recover strongly with continued stability in the markets. The research firm is particularly optimistic about mutual fund advisory programs, which have the ability to provide diversification for clients at all asset levels, enabling successful adoption across almost every distribution channel. Nearly half of total no-load shares in 2008 were in mutual fund advisory programs, according to Cerulli, citing Strategic Insight, an Asset International company.

Furthermore, the individual retirement account (IRA) rollover market will help fuel growth in mutual fund advisory programs. Cerulli projects 401(k) distributions to grow through 2014, resulting in a reliable stream of assets entering mutual fund adviser programs via IRAs.

More information on The Cerulli Edge—Managed Accounts Edition is available at www.cerulli.com.

Data & Research March 31, 2010

Pace of Plan Change Still Positive, But Slow

Participants were more likely to gain access to advice last year – but the pace of expansion was slow.
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According to data from Charles Schwab, through the end of 2009, 70% of plans serviced by Schwab made 401(k) investing advice available to participants, up from 62% in 2008. 

In fact, plan sponsors continued to make positive enhancements to their programs last year, albeit at a more modest pace, according to the report.  That said, 68% of plans offered target funds (compared to 65% a year ago), and 35% of employers were automatically enrolling employees in their plan, up slightly from 33% in 2008.

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“People are emerging from the market downturn with a newfound respect for the importance of saving and retirement readiness,” said Dean Kohmann, vice president of 401(k) plan services for Charles Schwab, in announcing the results.  “Despite the fact that employers have understandably become more cautious about adopting 401(k) features that can increase plan costs, our plan sponsor clients remain focused on providing employees with the resources and tools they need to make informed decisions and meet their retirement savings goals.”

Employee participation and savings rates both held steady from 2008 to 2009 according to initial Schwab data; 2009 plan participation rates remained at an average of 74%, while participant savings levels held at an average of approximately 7%, according to a press release.

Target-Dates Tops

Additionally, a majority of plans (70%) used aged-based target date funds as the default 401(k) investment for automatically enrolled participants, with significantly fewer opting for balanced funds (21%) and money market and Stable Value funds (6%).  In 2008, 69% opted for target-date funds.

Most (60%) that automatically enrolled their participants did so at a default rate of 3%.  Plans with 2,500 or more participants were far more likely to implement automatic enrollment, with 53% using an automatic enrollment program – nearly double the 28% rate among plans with fewer than 500 participants.

Of the plans automatically enrolling employees, a third (34%) were also automatically increasing savings rates for participants in 2009, reporting an average deferral ceiling of approximately 7%.  That’s slightly higher than the 30% of automatic enrollment plans with an automatic savings increase feature in place in 2008.

More than half (54%) of plans offered a self-directed brokerage account (SDBA) for participants – another slight increase in trend compared to 2008, when 52% did.  Half of the plans offered a Roth 401(k) option for plan participants, up from 46% at the end of 2008.

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