Mutual Funds Not Considered Through-Retirement Solution

The average investor thinks a mutual fund will help meet retirement goals, but is not confident it will provide an income stream.


Within the 44.1% of U.S. households owning mutual funds, 94% said retirement is their primary goal for having them. In addition, 82% of those owning mutual funds said they feel very or somewhat confident in the ability of mutual funds to help them meet their retirement goals, but only 22% consider mutual funds a means of providing current income, according to the Investment Company Institute (ICI).

While relabeling existing income funds to include the phrase “strategic income” can improve investor awareness of long-term funds’ capability to provide an income stream, investors might think the fund name depicts a fixed income-oriented fund and not necessarily an equity-based fund, according to a report titled “Asset Management Industry Market Sizing 2012-2017,” from Financial Research Corp. (FRC), a Division of Strategic Insight.

To combat this thinking, the fund industry must improve education and awareness for advisers and investors about how funds can complement existing income strategies through dividend-paying options, Amy LaFrance, senior research analyst at FRC and author of the report, told PLANADVISER. This is especially important if the goal of fund providers is to retain assets through retirement, she said.

“As the search for income intensifies, fund providers must educate investors and advisers about the role mutual funds can play in income planning,” LaFrance said. “Fund providers must be willing to demonstrate how adding income funds into an overall portfolio can deliver a stabilizing effect—especially during the draw-down periods. In turn, advisers must relay this to their clients, either through hypothetical reports or additional client-approved material from fund providers.”

Compared with the return on stable value funds today, equity income funds can often generate greater income potential, and their inclusion in employer-sponsored platforms can help mitigate the impact of negatively sequenced returns, LaFrance said. As fixed income becomes increasingly more difficult to navigate over the next several years, plan advisers and sponsors may find that equity income mutual funds prove to be a suitable complementary alternative, she added.     

“[Mutual funds are] not meant to provide the entire source of income, but they certainly can complement existing income streams,” LaFrance said.   

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