Deals & People October 28, 2008

MFS Wades into DCIO Market

MFS Investment Management (MFS) completed the formation of a business development office for the defined contribution investment only (DCIO) marketplace, the company said.
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MFS said it has the products, tools and resources to service the DCIO marketplace, including a variety of investment options available on major investment platforms, access to the latest analytic tools to help provide investment support with analysis and performance attribution for advisers, as well as marketing collateral, white papers, and other business building programs to help grow and build their retirement business offerings.

“Our value proposition is unmatched in this marketplace: a long history of working with advisers, of managing money and understanding the needs of plan sponsors and plan participants,’ said Martin Beaulieu, managing director and head of Global Distribution for MFS, in a press release. “We believe we can support advisers—through our products, our people and our experience—and help them grow their DCIO retirement practices.”

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The new office will be headed by Matt Gannon, senior vice president and director of DCIO and Strategic Alliances at MFS Investment Management. Gannon, previously the director of Dealer Relations for the firm, leads a collaborative effort across MFS distribution groups, supported by a team of DCIO investment specialists, a sales desk, and more than 120 sales and relationship management professionals.


The Markets October 28, 2008

The Alternative Route

Following the success of alternative investments for institutional investors, advisers are increasingly using alternative investments in the retail market, Cerulli research says.
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As some alternative investments—such as real estate investment trusts (REITs) and even exchange-traded funds (ETFs)—are becoming pretty familiar to advisers, other alternative strategies are not gaining as much traction in the adviser market, Cerulli data show.

The markets of late have reinforced the importance of diversification, therefore increasing consumer demand for alternative investments, according to the latest The Cerulli Edge—Adviser Edition. However, Cerulli says some advisers are using alternative investments more to generate revenue in a bear market than to complement to a client portfolio.

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Overall, the increased uptake of alternatives by advisers has increased as major foundations, endowments, and defined benefit plans have increasingly allocated to alternatives. About half of advisers surveyed by Cerulli say academic research and institutional investing has influenced their use of alternative investments. A much smaller number (15%) say client demand has influenced their use. The report says that as adviser and client comfort with alternative investments continue to grow, so will usage.

More products are flooding the alternative investment market, including ETFs and other products designed to increase diversification (see The Rising Fame of ETFs). Non-traded REITs are among the most common retail-sold alternatives (90% of advisers across all core markets use them). Because they have fairly low minimum investments, they are much more accessible to lower-net-worth clients than hedge funds. Most advisers (62%) say the main reason they use REITs is to diversify, according to Cerulli data.

Hedge funds are generally based in the high-net-worth market. Advisers who focus on clients with more than $10 million in net worth have around 10% of their assets in hedge funds, compared with no hedge fund assets among advisers focused on clients with a net worth less than $250,000, according to Cerulli. But Cerulli also sees a trend of young wirehouse advisers using hedge funds and other alternatives as a way to differentiate their practice. Across all markets, 40% of advisers implement hedge funds. In the $250,000 to $1 million core market, 19% of advisers use hedge funds, and that percentage gradually increases. In contrast, advisers in the under $250,000 market use no hedge funds at all.

Cerulli says fund of funds (FOFs) are the future for hedge funds in the retail channel. For retail investors with lower balances than a DB plan, FOFs provide diversification, giving access to more than one manager. Structured products are also alternative investment options for advisers. Although few advisers allocate assets to structured products (less than 1%), they are being applied across multiple channels, according to Cerulli.

Ultimatley, manufacturers and broker/dealer firms should take note that it will be adviser education that drives the use of alternative investments, according to the report.

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