The Markets May 12, 2011

Retail Separate Accounts an Opportunity for Institutional Managers

Cerulli says new opportunities can be recognized in the retail separate accounts industry by institutional asset managers that are willing to pursue them.
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In 2003, the aggregate amount of assets held by asset managers participating in the separate account industry showed a skew toward institutional assets. Seven years later, the assets are more the realm of retail mutual fund managers.
 
Cerulli’s says in its latest U.S.-focused monthly publication: “The most obvious reason for this shift is costs. It’s difficult for an institutional manager to justify the lower fees and lower account balances that are typically received from subadvisory separate account programs. Alternatively, retail-oriented asset managers, also successful at distributing higher margin mutual funds, can look at the revenue from the whole sponsor relationship as a blended fee (essentially offsetting the lower-margin separate account business).”
 
However, the recent growth that dually-registered programs have experienced represents renewed opportunities for institutional managers. These programs have become favorable amidst adviser movement, model portfolio pressure, and the need for customization.
 
Boutique institutional asset managers that wouldn’t build operational support for subadvisory programs and won’t submit model portfolios should now look at dual-contract programs as a channel, Cerulli said. These managers likely have expertise around building unique products (e.g., liability-driven investing) that can be distributed through a dual-contract arrangement where they are working with larger client account sizes and can leverage their existing sales and relationship management structure.
 
The publication suggests that for separate account programs to once again flourish, it will take increasing customization of the solutions, and again embracing the program’s roots in institutional managers. Cerulli contends managers have a symbiotic relationship in this endeavor, as their efforts to differentiate themselves should also advance the goals of the broker-dealers, namely serving larger clients with more customized solutions. 
 

Data & Research May 12, 2011

Affluent Plan Participants Not Completely Satisfied with Provider

Less than half of affluent investors are completely satisfied with their current employer-sponsored retirement plan provider, according to a new report released by Cogent Research.
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On average, only 45% of affluent investors said they are satisfied with the provider their employer has chosen to run their retirement plan, with nearly as many (43%) saying they are only somewhat satisfied, and about one in ten (12%) expressing dissatisfaction. Satisfaction levels are lowest among Gen X investors (40% on average), with Baby Boomers being only slightly more satisfied (48%), according to a press release.  

The research found four retirement plan providers, including TIAA-CREF, Vanguard, Fidelity and T. Rowe Price, fare better than other firms, all of which succeed at satisfying a majority of their affluent plan participants. TIAA-CREF tops the list with 63% of their affluent plan participants being satisfied with the recordkeeper. Vanguard comes in a close second, with nearly six in ten (59%) of their affluent plan participants expressing satisfaction. Fidelity and T. Rowe vie for the third spot, with both firms exceeding a majority (55% and 54%, respectively).  

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“Keeping plan participants happy can have a multiplier effect,” said David Feltman, Managing Director of Cogent Research, in the press release. “Satisfied plan participants are three times more likely to roll dollars into an IRA with their current 401(k) or 403(b) provider than are those that are not happy,” he adds.

 

Catching Rollovers 

Cogent Research has found that 25% of affluent Americans have assets sitting in former employer’s retirement plans, about half of whom (42%) say they are likely to rollover the assets into an IRA sometime within the next year (representing approximately $350 billion from affluent investors alone).  

When asked where they would be most likely to rollover former employer plan dollars, Fidelity tops the list, cited by 20% of respondents. Vanguard comes in a close second, being identified by nearly one in ten affluent investors (7%).  
Wells Fargo (5%), Charles Schwab (5%), and Merrill Lynch (3%) round out the top five destinations for IRA Rollover money.
 

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