Progress 95% Inside America s retirement plan Trends from the largest independent retirement plan provider Vol. 1 June 2014

Transcription

1 Progress 95% Inside America s retirement plan Trends from the largest independent retirement plan provider Vol. 1 June 2014

2 Reading the pulse of America s retirement plan industry The retirement plan landscape is constantly changing. As America s largest independent retirement plan and college savings provider, we have a vantage-point view of the industry. Our recordkeeping data tracked over years reveal emerging patterns that point to some major shifts. We ve identified key trends in this report that reflect the current state of the industry and where it s headed.

3 The largest independent service provider in the industry million eligible retirement plan participants million 529 college savings accounts administered million IRAs administered Top 5DC plan provider by plan count % Market share 2 Servicing retirement plans ranging from startups to 1 billion in plan assets 14 investment options k billion in retirement and college savings assets years of experience 1 <10 million market. Source: The Cerulli Report: Retirement Markets 2 Cerulli Associates () 3 03/31/2014 3

4 Business trends: moving toward a fee-for-service structure Popularity of fee-for-service plans continues to grow In 2010, only 12 % of the new plans on our platform had a fee-for-service compensation structure. Today, more than three quarters of new plans sold on our platform fall into the fee-for-service category. 46 % 2012 Plan size 3.2M Fee 2.2M 789K Commission 1.3M 2009 Smaller plans are adopting the fee-for-service model We ve seen the fee-for-service model move down market to smaller sized plans. The average plan size has dropped from 3.2 million in 2009 to 2.2 million in without accounting for the bull market during the same period. As a result of this shift, the average plan size of commission-based plans has increased. 19 % 12 % 2010 Fee-for-service vs. Commission 78 % Average service revenue* 0 bps 1-25 bps 7 % 48 % bps 50+ bps 30 % 15 % 0 bps 1-25 bps 27 % 44 % bps 50+ bps 12 % 17 % What s driving lower service revenue? For nearly 3 out of 4 plans on our platform, service revenue is between 0-25 bps. The primary driver of this result is institutional shares that have lower expenses but are paying nominal revenue share due to legacy agreements. *Service revenue = subta + 12b-1 4

5 Business trends: what are your peers charging? Compensation range in bps < 3M m m Plan asset size 3-5M 5-10M 10-15M 15-20M 20 + M m 40 m 40 m 25 m 30 m 25 m 25 m 22 M 25 m 20 m 20 More advisors are adopting flat-dollar compensation The percentage of advisors using a flatdollar compensation method doubled over the last two years with plans of all sizes showing increased adoption. This trend was particularly pronounced in plans over 20 million, where flat-dollar-based compensation increased from 12 % in to 32 % in. Compensation range in bps <25 m m m 50 m 50 Participant count m m >500 m 30 m 33 m 25 m 25 Key: m = Median compensation 5

6 Plan design trends: convenience drives adoption 82 % of new Ascensus clients opt to have online enrollment Most of the plans on 82 % 52 % The average 4,376 our platform offer participants online enrollment options. 18 % restrict enrollment to paper only. 7 % 52 % of plans fund a match and provide employees with an incentive to save more. participation rate for plans funding a match is 7 % higher than the average for plans that don t. Available 3,749 2,939 3, % 15 % of employers use automatic enrollment Utilization 0 bps 1-25 bps 1,521 1, bps 1, bps 964 Low cost. High utilization. More than half the funds available on our platform generate 25 bps or less of service revenue. Predictably, funds with zero bps were most popular with employers. *Service revenue = subta + 12b-1 21 % Plans with automatic enrollment average 21 % higher participation compared to plans without it. 6

7 18 % QDIAs capture 18 % of assets when offered Over half the plans on our platform currently offer a QDIA. 90 % QDIAs were elected by 90 % of employers in, an increase from 85 % in QDIA re-enrollment increased to 42 % in from 31 % in

8 Investment trends: less active and more guided Guided investing gaining popularity % % Guided investing solutions gained market share with growing popularity of target-date funds and model portfolios More participants opted for a hands-off, helpme-get-there approach by allocating funds in either target-date funds or models. For plans sold in, model portfolios and target-date funds captured 37.7 % of assets. Actively managed funds losing market share % % While still popular, actively managed funds accounted for a smaller slice of the investment pie Actively managed funds remained stable in absolute dollar terms, but decreased dramatically as a percentage, as new investments surged in passiveindex funds and target-date funds. This trend mirrors the broad-based decline in market share for actively managed funds across the industry. 1 Passive/index funds gaining popularity 4.52 % 9.81 % Passively managed and index funds more than doubled in market share The decline in market share for actively managed funds appears to correlate to the increased flow of assets into passively managed funds. 8 1 Christine Benz and Kevin McDevitt. What s Driving Investors Away From Actively Managed Funds? Morningstar.com. 08:13. April 18,

9 Investment trends: Models, target-date funds, and ETFs Model portfolios 26 % of plans offer model portfolios. Model portfolios capture 39 % of assets when offered. 50 % of employees invest in a model portfolio when offered. 17 % of plans adopted models. Target-date funds 39 % of plans offer targetdate funds. Target-date funds capture 18 % of assets when offered. 72 % of plans sold in offered target-date funds. Exchange traded funds 19 % of fee-forservice plans offer ETFs. ETFs capture 23 % of assets when offered in a plan. 17 % of new feefor-service plans sold in offered ETFs. 9

10 Retirement readiness: not quite there yet For participants who used the Ascensus retirement income calculator, only about 4 in 10 individuals were on track to meet their retirement goals. 38 % of employees on track to meet their goals 62 % of employees not on track to meet their goals 14 % deferral rate: The average deferral rate for those on track to meet their goals. 25 % shortfall: The average deficit from goal for those not on track to meet their goals. 15 % of calculator users increased their savings rate Greater awareness and urgency led to deferral increases for individuals who used the retirement income tool % 34 % of participants who weren t deferring started contributing after using our calculator at an average rate of 8.58 %. 10

11 Average user of the retirement income calculator: age: 43 income: 88k 11

12 For financial professionals who care about their clients success, from a company that cares about yours. 200 Dryden Road Dresher, PA Toll Free: Phone: Fax: ascensus.com Ascensus provides administrative and recordkeeping services and is not a broker-dealer or an investment advisor. Ascensus and the Ascensus logo are registered trademarks of Ascensus, Inc. Morningstar Retirement Manager SM is offered by and is the property of Morningstar Associates, LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc. Investment advice generated by Retirement Manager is based on information provided and limited to the investment options available in the defined contribution plan. Projections and other information regarding the likelihood of various retirement income and/or investment outcomes are hypothetical in nature,do not reflect actual results, and are not guarantees of future results. Results may vary with each use and over time. Morningstar Associates and its affiliates are not related to Ascensus and its affiliates. Copyright 2014 Ascensus, Inc. All rights reserved. (06/14)