Products February 21, 2014

Time Is Ripe for Next Big All-ETF 401(k) Provider

An innovator in the offering of exchange-traded funds (ETFs) in 401(k)s is selling its intellectual property.
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“We have been running plans with all ETFs since October 2003, and continually enhancing our product—keeping costs down and automating almost everything,” Darwin K. Abrahamson, CEO and founder of Invest n Retire, LLC in Portland, Oregon, tells PLANADVISER.

Abrahamson explains that a patent for his firm’s technology was finally issued January 28 of this year. That is when a person from whom Abrahamson had secured a loan with the intellectual property as collateral gave him a 15-day notice to pay off the half-million dollar note. “I didn’t have the half million, so to protect the patent, our company and investors, we filed for Chapter 11 bankruptcy protection.”

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Abrahamson says he had already started talking to firms about selling the intellectual property. It is a true software as a service (SaaS) recordkeeping product; users don’t need to invest in additional hardware or handle the installation, set-up and daily upkeep and maintenance. It is capable of recordkeeping for plans with mutual funds, not just ETFs. He notes there are clients on the books that never moved from offering mutual funds in their investment lineups to ETFs.

But, for those wanting to jump into the all-ETF 401(k) space, recently started by Schwab Retirement Plan Services (see “Schwab Introduces All-ETF 401(k) Platform”), “it is the holy grail of what’s needed for ETF plans; the buyer will have a fully automatic system requiring no workarounds, and our system is well-proven,” Abrahamson contends.

A pooled account owned by a third party, such as a bank or broker/dealer, does not need to be used with Invest n Retire’s service to enable trading of whole ETF shares when there are fractional shares. Trades are executed within seconds of after a price quote and posted within minutes. All trading activity is done automatically throughout the day, eliminating any manual processes.

Invest n Retire’s program is an unbundled offering; plan sponsors may choose their own investment manager, adviser, TPA (third-party administrator) or custodian.

“There’s a huge value now in what we’ve built, with the patent being issued, for tax-deferred retirement plans,” Abrahamson says. “We need to get this technology in the hands of a much larger firm that can take it to a larger market and enhance retirement plans for participants; that was my goal in creating this company.” Invest n Retire, LLC has been a big proponent of using ETFs in defined contribution (DC) plans, and has gathered the data to support its stance (see “Has the Time Come for ETFs in DC Plans?”).

So, instead of the bankruptcy being a bad thing, it’s turned out to be a good thing. Abrahamson says the list of firms interested in buying the technology is getting longer each day. There are large consulting and recordkeeping firms, as well as some ETF companies, interested. “This is just speeding up what we intended to do.”

The buyer will not only get the technology, but will benefit from Invest n Retire staff expertise. “We’ve agreed we’ll work for the new firm for a period of time to help with the transition and running the technology,” Abrahamson says.

Handing off its innovative recordkeeping product does not signal the end for Invest n Retire. Abrahamson says the firm is in the process of enhancing its software for managed and separate accounts. And, Abrahamson sponsors a multiple employer plan and will focus on marketing that.  More about that is to come, he says.

Products February 21, 2014

Collective Investment Trust Takes TDF Approach

Investment services provider American Century Investments launched a collective investment trust (CIT) designed for defined contribution (DC) participants that incorporates the firm’s One Choice Target Date Portfolios.
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“Collective investment trusts are critical to the defined contribution business because they give plan sponsors and their consultants more flexibility in building investment lineups for their employees,” says Rick Luchinsky, senior vice president of defined contribution investment-only (DCIO) business at American Century Investments.

Like mutual funds, CITs pool the assets of many investors and can take advantage of economies of scale. But unlike mutual funds, a CIT is typically operated on behalf of a single qualified retirement plan and is not available on the retail market. Another key difference is that collective trusts are issued by banks and trusts rather than by fund companies, meaning they are not regulated by the Securities and Exchange Commission (SEC). Because CITs are bank products, they are regulated by the comptroller of the currency and state banking commissioners. This offers sponsors another layer of protection, in that the bank or trust managers serve as plan fiduciaries under the Employee Retirement Income Security Act (ERISA), and their activities are subject to scrutiny by banking regulators (see “Investment Structure: Coloring the Investment Menu”).

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American Century Investments says that Kansas City-based Lockton Companies will be the first client to use the CIT. The firm says Lockton, a global risk management and employee benefits consulting firm with about 5,000 associates, will add the CIT as its plan’s qualified default investment alternative (QDIA).

American Century, which began offering CITs in 2009, launched the new target-date CIT in order to meet client demand, Luchinsky says, adding that the One Choice Portfolios are the most popular investment product among his firm’s DC plan clients.

“Clients asked us to create a CIT using our target-date strategy,” he says. “This is the result.”

“Lockton is pleased to be the first client to use the new CIT,” says Thomas Clark, president of Lockton Investment Advisors and leader of Lockton’s retirement services practice. “After a lengthy due diligence process, we concluded that the investment philosophy and process of American Century’s One Choice Portfolios, combined with the pricing advantages of the CIT, were an excellent fit for our retirement plan.”

More information about the CIT is available by calling American Century Investments at 800-345-6488 or by visitinghttp://www.americancentury.com/ipro.

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