Mutual Funds to See Moderate Growth in 2011

Mutual fund asset growth is expected to level out at a 10% rate in 2011, as compared to the 16% increase experienced in 2010, according to Financial Research Corporation.

Despite a solid uptick of 28% in net flows to a forecasted $325 billion, FRC believes that economic conditions across the largest developed countries will weigh heavily on market conditions through 2012.   

“As a result of the global economic conditions, we expect moderate flows and returns for most mutual funds and ETF categories through the balance of this year and into next,” said Larry Petrone, author of the study, in a press release. “However, for the 2013 through 2016 period, we expect meaningful improvements in sales and returns for domestic equity, balanced, corporate, and international funds, as well as ETFs,” said Petrone.  

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In its report, FRC is projecting the pace of exchange-traded fund (ETF) growth to slow in 2011. FRC is basing this view on its observation of lower money flows into commodity ETFs and a more cautious international investor. Petrone commented on the longer term view of ETFs that “while we foresee a brief respite in the blistering pace of asset growth in ETFs, which nearly doubled between 2008 and 2010, we see the pace picking up in 2012 with ETFs reaching $1.4 trillion in assets by the end of the year.”  

FRC sees the U.S. economy and the investment management industry continuing to grapple with a number of significant continuing effects of the 2008-2009 Great Recession. The FRC study cites slow growth and sovereign debt issues in the Euro zone, along with the poor housing market and high unemployment in the U.S., along with the after-effects of the earthquake and the nuclear disaster in Japan, as factors weighing down near-term prospects. Petrone commented that “the combination of the various repercussions of the recession are likely to stunt equity fund returns, while low yields and the threat of higher inflation will make fixed-income funds less attractive than over the preceding two years. However, we see improvements over the 2013 thru 2016 period, driven by more long-term demographic, product, and retirement trends, which we review extensively in the report.”    

Other key marketplace issues covered in the study include: 

  • Continuing Growth of the Registered Investment Advisor (RIA) Channel – FRC forecasts solid growth in new advisors, mutual fund sales, and mutual fund assets for the RIA channel, the strongest performer among intermediary channels. 
  • Stabilization of the Wirehouse Channel – In 2010, all four wirehouse companies laid the groundwork for a strong recovery, and FRC anticipates the growing focus on cross-selling opportunities, increased use of managed accounts, and improved investment tools will help drive advisor productivity and average client asset balances.  
  • Managed Accounts Will Continue to as a Strong Competitor to Mutual Funds – Managed accounts grew 21% in 2010, based on strong net sales and appreciation. FRC sees continued growth in the low-double-digit range through 2016.
This was the fifth edition of FRC’s Mutual Fund Market Sizing study.

Great-West Rolls Out Fee Disclosure Template

Great-West Retirement Services has unveiled a fee disclosure template that goes beyond the requirements outlined by the Department of Labor.

The Colorado-based provider has developed a template that combines fee disclosure elements in a single document, and includes the disclosure of fees not required by the Department of Labor’s new 408(b)(2) requirements.  Charlie Nelson, president of Great-West Retirement Services, explained that the firm’s new disclosure format presents fees in dollars and percentages, rather than formulas, though that isn’t required by the new regulations. 

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The fee disclosure document itself displays the fees paid by a plan in three distinct categories, those paid to:

  • The investment provider
  • The recordkeeper
  • Other third parties

That information is presented as a single number, as well as an estimated average cost per participant in each category, and the total presented not only as a single figure, but also expressed as a percentage of plan assets. 

Beyond the summary information, the disclosure document also breaks down those pieces to show how cash flows from one party to another, including the flow of revenue-sharing dollars to the recordkeeper, and how that money is distributed to third parties on behalf of the plan.  Payments to the recordkeeper are further delineated by categories such as plan services, participant services, and “other” services, and deeper in the document are presented in an even more granular detail.  Payments to investment providers include the detailing of 12b-1, and administrative expenses, as well as the net expense ratios for each fund.  Additionally, Great-West is disclosing fees associated with its General Account.

Great-West has engaged DALBAR to work on the design of the template, and to certify its compliance.  Additionally, Nelson noted that Great-West shared the template with a number of advisers and third-party administrators who provided additional input into the design of the document. “We believe it’s important that plan service providers work together to provide these documents to plan sponsors,” he said. “It’s critical that plan sponsors have access to comprehensive, easy-to-understand information so they’re aware of all the services different providers deliver to the plan and its participants.”  Great-West also worked with focus groups of plan sponsors in developing the template design.

A sample template is available upon request by emailing lisa.gigax@gwl.com.

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