Survey: 73% of Top Advisers Chat In-Plan Annuities With Clients
PLANADVISER’s quarterly pulse survey finds the majority of retirement plan advisers “occasionally” discuss in-plan options, but some don’t see the market as viable yet.
Adding retirement income annuity options into defined contribution plans is making its way into conversations between plan advisers and plan sponsors, though not necessarily for implementation in plan design, according to our latest survey.
In the Q3 PLANADVISER Top Retirement Adviser Pulse Survey, 60% of respondents said they occasionally talk about in-plan retirement income with clients, and another 12.5% say they always do. But within that group, many say they are only using them as a talking point while recommending other strategies for distribution.
When asked whether in-plan options are part of retirement plan committee discussions, most advisers said yes, at least sometimes:
Question: In your conversations and check-ins with plan sponsors, do you discuss a retirement income annuity option for plan participants?
Always
Occasionally
Never
Other
When it came to the types of annuity options being discussed, the tendency veered toward ease of implementation. For instance, the most popular option (31%) for discussion was providing an annuity option in a target-date fund—a product still in the opening innings in terms of implementation by recordkeepers.
The second most popular option (27.5%) was to purchase institutionally-priced annuities from a menu—similar to a program created by Kelly Hueler and bought by Morningstar Inc. in 2020.
The third most popular option was “Other,” at 27.6%, with respondents noting “multiple options” depending on need, and a couple noting they are just discussing the concept of retirement income and potential strategies. A few more said they are not discussing any annuity options.
Question: What type of retirement income annuity option do you discuss?
In-plan annuity available via managed account
3.4%
In-plan annuity available via target-date fund
31%
Out-of-plan retail annuity
0%
Institutionally priced annuity via platform such as income solutions
When asked about the future, advisers remain on the fence about discussing in-plan annuity options, with 80% still giving it a “maybe.”
Question: Do you plan to discuss retirement income annuities in the next one to two years?
Yes
No
Maybe
Other
Finally, we asked top advisers their ideal options for a guaranteed income annuity for plan participants. The answers came in similarly to those already being discussed, with a TDF option leading, followed by an institutionally-priced rider option. In this case, however, 20% noted that they do not prefer an annuity option and will stick to other distribution methods in retirement.
Question: What would your ideal retirement income solution be if it could be available from the top recordkeepers and at an appropriate fee? If no annuity is preferred for retirement income management, select “Not preferred—rather manage through distribution strategy.”
In-plan annuity available via managed account
10%
In-plan annuity available via target-date fund
31%
Out-of-plan retail annuity
0%
Institutionally priced annuity via platform such as income solutions
Not preferred – rather manage through distribution strategy
20%
0ther
12.5%
In comments, some advisers noted that they do not feel the annuity market is mature enough yet to discuss with clients. One wrote that there is “way too much product out there for us to be ready to have any serious discussions about this.”
Another said, “Everyone is still new to this. BlackRock is the closest on a TDF.”
The pulse survey was fielded in September and taken by 42 retirement plan advisers among PLANADVISER’s 2023 Top Retirement Plan Advisers list.
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ESG factors are increasingly being integrated into institutional investment policies and practices, according to new research from Morningstar Inc.
Morningstar’s 2023: Voice of The Asset Owner survey synthesized data from global asset owners about environmental, social and governance investment issues and how their perceptions influence their thinking and decisionmaking. The firm’s second annual survey probed asset owners to deliver quantitative data about ESG considerations and investment strategies. The report, written by Tom Kuh, head of ESG strategy at Morningstar Indexes, and Arnold Gast, ESG director at Morningstar Sustainalytics, is a follow-up to July’s qualitative insights survey.
“At some point in the future, I expect that what we now call ESG will be a standard part of investment analysis,” Kuh said in a written statement. “The label itself may diminish in importance and simply be standard practice. We also might anticipate that as companies integrate ESG into their management strategies and business models, higher ESG standards would be reflected in broad market benchmarks.Regulation is a driving factor for asset owners because it requires consideration of, and reporting about, ESG policies and practices. As these standards and practices become embedded in the global regulatory frameworks, ESG will simply be woven into the fabric of mainstream finance.”
The report’s authors also noted that sustainable investing is complex and diverse. Although there are challenges across the field, they concluded that a majority of asset owners seek to accomplish sustainable investing.
The survey comes at a time when ESG investing is intertwined with local and national politics. Some U.S. states are trying to limit ESG considerations from investing, while the EU and California have increased certain ESG-related disclosure requirements.
Morningstar surveyed 500 asset owners who oversee $10.7 trillion in assets. Out of those surveyed, 100 respondents came from North America, while 200 respondents each came from Europe and Asia. More than 60% of funds interviewed have more than $1 billion in assets under management. Of those included, 22% were pension funds, 21% were insurance general accounts, 18% were outsourced CIOs and 17% were family offices.
Net Zero, DEI Are Top ESG Issues
More than 50% of survey respondents said trying to achieve net zero greenhouse gas emissions is important to investment decisions. Other environmental issues highlighted include energy management, which 40% said is an issue material to their portfolio. Sustainable food/agriculture came in at slightly less than 40%, water and wastewater management at slightly less than 35%, and waste and hazardous materials management at slightly more than 30%.
In the social category, diversity and inclusion were the most important issue, with more than 55% of fund managers saying it is an important issue. Other important issues included customer privacy and data security (more than 45%); human rights (linked with community relations in the survey question) (almost 40%); product quality and safety (almost 40%); and labor practices, including employee health (35%).
In governance, risk management was the most important issue to asset owners, with slightly more than 40% of those surveyed saying it was important. Of other major issues, business ethics and management of the legal and regulatory environment (40%) was emphasized by more respondents than either incentives for management to meet climate goals or compensation, each of which drew fewer than 35% of responses.
According to Morningstar’s July qualitative survey, political polarization is one reason U.S. asset owners lag behind European and Asian peers when it comes to investing based on ESG principles. Results of Morningstar’s quant report confirmed the geographic split, with 36% of North American funds applying ESG principles to their investments, while 46% of European funds and 41% of Asia Pacific funds did.
In the Asia Pacific region, client/stakeholder reluctance was the largest factor given by funds in that region not considering ESG factors.
Worldwide, however, the report ranked the major barriers to pursuing an ESG investment strategy, and impact on returns was the most common barrier to ESG investing, cited by slightly less than 40% of respondents. The lack of available products was cited by more than 30% of respondents, and client and shareholder reluctance was cited by a similar share.
Two different questions about data elicited very different responses than in the prior year’s survey. This year, nearly 30% of asset owners surveyed said a lack of standardized data was a barrier to pursuing an ESG strategy, nearly double the 15% that said so in 2022. Unreliable or out-of-date data also was an issue for roughly 30% of funds in this year’s survey, again nearly doubling responses from 2022.
Regulation was also considered a barrier to pursuing ESG strategy by nearly 30% of surveyed asset owners, up from 20% in 2022.
The “regulatory environment is complicated for asset owners,” Kuh said. “In some cases, regulation is a rationale for considering ESG factors, and 54% of asset owners say they have helped bring clarity to definitions and standards. On the other hand, asset owners find some regulations confusing or unclear, particularly when they are subject to regulatory regimes in multiple jurisdictions.”
Greenwashing Remains an Issue
Asset owners reported greenwashing to be less of a problem, albeit slightly, than in the prior year’s survey: 15% of respondents said greenwashing is not a problem, up from 11% in 2022. That was dwarfed by the respondents who continue to list greenwashing as some level of problem: 29% of surveyed funds termed greenwashing a minor problem, 36% found it moderate and 19% deemed it major. In 2022, the results were 26% minor, 38% moderate and 23% major.
More than 25% of those surveyed said more transparency can help address greenwashing, 20% responded that more or stronger regulation would help address the issue, and 15% called for stronger enforcement of current regulations, down from roughly 17.5% last year. Better business ethics (15%) and pressure from asset owners (less than 10%, down slightly from more than 10% last year) were also included.
According to the survey, 63% of asset owners said ESG data, ratings, indexes and other tools have gotten somewhat or a lot better over the past five years, 22% said they are about the same, and 13% said they have gotten worse.
However, 48% of funds responded that they would like to have more accurate data, 42% said they would like to have more timely data, more than 40% said they want more objective data, and more than 35% of funds said they want more complete data and more standardized reporting.
Nearly 40% of funds said international standard-setting bodies are responsible for improving ESG tools. Roughly 35% said this is the role of ratings agencies, and a similar figure said governments are responsible. Slightly more than 30% of funds responded that specialized data providers, index providers and the markets are responsible for improving ESG data, ratings, indexes and tools. Nearly 20% said nongovernmental organizations are responsible, and roughly 15% said academics.
A large majority of asset owners reported that the role artificial intelligence will increase in conducting data collection, ESG analysis, portfolio construction and index creation over the next five years, with 70% anticipating increased adoption for data collection, 17% unsure and 10% predicting AI will not evolve significantly in this role.
For ESG analysis, 67% of surveyed asset owners said AI use will increase. For portfolio construction, 55% said AI use will increase. Finally, 56% of those surveyed said AI use will increase in the use of index creation.
