Data & Research June 28, 2012

More DB Sponsors Looking for Fiduciary Investment Managers

An SEI quick poll of 50 corporate defined benefit (DB) plan sponsors found 26% use a 3(38) fiduciary manager.

 

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Two-thirds (65%) of respondents currently use a 3(21) investment adviser, and 9% do not use an investment adviser at all. 

Of the poll participants who said they are not currently using a fiduciary manager, 29% said they would likely consider a change to this model within the next five years, potentially more than doubling the use of an outsourced fiduciary manager model by corporate pension plan sponsors by 2017.  

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According to the Employee Retirement Income Security Act (ERISA), an investment provider who assumes discretion is considered to be a 3(38) fiduciary manager. Other industry names for this model include investment outsourcing provider and outsourced chief investment officer (OCIO). In contrast, an investment provider who delivers advice only is considered to be an ERISA 3(21) investment adviser. An example of this model would be a traditional investment consultant.  

Poll participants currently using a 3(38) fiduciary manager said this model allows them to focus more on strategic issues, such as aligning investment decisions with corporate financial goals, and delegate tactical decisions, such as improving portfolio diversification. 
 

 

The top three strategic priorities identified by plan sponsors working with a fiduciary manager included developing new solutions to better control funded status volatility (82%); mitigating the potential impact of plan contributions on corporate finances (45%); and formulating a plan glide path with automatic triggers to capitalize on market swings and protect funded status (36%).  

With a continued low interest rate environment, the majority (55%) of poll participants currently using a 3(21) investment adviser also identified the need to develop new solutions to better control funded status volatility as the top priority in working with their investment advisers this year.    

Poll participants currently using an investment adviser identified a few top investment management priorities that differed from those currently working with an outsourced fiduciary manager.  More than one third (36%) of poll participants indicated the need for a process that allows them to execute faster on market changes. However, when asked their top reason for using an investment adviser, the majority (73%) of poll participants said they currently use this model even though they already have dedicated internal staff in place. This shows that many plan sponsors may have the staff, but still lack the capability of executing on market changes in a timely and effective way.    

Additionally, more than one-quarter (27%) said increasing the level and frequency of comprehensive strategic advice is a top priority for better plan management this year.  

Poll participants using an investment adviser said a loss of control in selecting managers is the main concern for their reluctance to use a fiduciary manager at this time.  

Complete poll results can be obtained by e-mailing seiresearch@seic.com.

 

Diversions June 28, 2012

Chief Executives Shy About Social Media

Workers use it constantly, but CEOs around the world are reluctant users of social media.
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An IBM poll of 1,700 CEOs across 18 industries in 64 countries found that a minority of chief executives are active social media users, yet those same execs expect social media will soon become the dominant way to interact with customers.

In some kind of executive suite paradox, CEOs worldwide in industries ranging from health care to electronics to financial services predict that social media use in customer interaction will rocket 256% in the next few years—yet only 16% of those same CEOs are themselves active in social media.

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Those surveyed admit that face-to-face interaction via their sales forces remains by far the dominant way to engage customers today. Social media, however, is now the least-utilized of all customer interaction tools.

CEOs predict, however, that within five years social media will push past websites, call centers and channel partners to become the No. 2 way to engage customers.

Views on social media vary widely across industries. About three-quarters of CEOs in education (77%), telecommunications (73%) and retail (72%) expect social media to become a key channel for customer engagement. Top executives in insurance (51%) and electronics (52%) come in below the overall average, and in industrial products, only 34% of CEOs believe social media will play a significant role, the lowest percentage of industries surveyed. 

 “From 1995 to 2000, the Web went from something only some people used to something almost everyone used to conduct business,” A chief executive from a U.S. financial markets industry said, likening social media’s march to that of the Internet itself.  “I view social media in the same way. We’re approaching the stage when almost everyone will have to figure out how to use it to conduct business successfully.”

 

(Cont’d …)

Despite its frequent use as a communication method with customers, CEOs recognize social media’s real value as a source of insight and a means of collaboration. “We use social media less as a marketing or distribution channel and more as a knowledge platform to obtain information about customers,” explained an insurance CEO from Switzerland. Some execs admit that engaging with customers via social media escalates expectations for timely, relevant and individualized interaction.

Social media is not just a business-to-consumer phenomenon.  “Our B2B [business-to-business] customers are also consumers of social media; you cannot split the two,” said a U.K. CEO in the media and entertainment industry.

An electronics industry CEO from Japan said his organization is helping (B2B) customers innovate by “incorporating the end user’s voice directly into product development.”

CEOs are working to sift hype from real opportunity regarding social media, and skepticism is often intensified by fear. “We’re not yet comfortable that social media has matured to the point we’ll benefit more than we’ll suffer,” said an industrial products industry CEO from the U.S.

Some are even unsure where to start. “Social media has grown faster than industry knowledge on how to use it,” said one Australian health care industry CEO.

A life sciences industry CEO from Switzerland admitted, “We are all scared to death about social media within our industry. We want to start with it. But we’re all just looking at each other, and nothing material is happening.”

Few CEOs claim to be personally involved in social media—an arm's-length approach that puts them in a precarious position of making critical judgments about a potentially powerful technology without much first-hand knowledge.

Those surveyed also remain reliant on less-experienced Generation Y advisers. “For the first time in my career, I feel old,” a U.K. insurance industry CEO said. “People in their 20s work and think about this social stuff in a different way. We’re using it as a way of connecting with friends and socializing; the kids coming up are using it as a way of life.”

The study is available here.

 

 

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