PICKING A WINNER Advisers share their favorite investment managers and recordkeepers

Transcription

1 PICKING A WINNER Advisers share their favorite investment managers and recordkeepers Advisers generally deal with multiple plan providers and investment managers on a regular basis, and in a variety of circumstances. They are also the ones constantly out in the field, sometimes struggling to stay fresh with the full range of products and services that the industry has to offer making them the perfect resource for plan sponsors befuddled and/or intimidated by those options. Our annual survey found that, while advisers have their favorite recordkeepers and investment managers, they are putting client interests first when selecting recordkeepers, investment managers, and funds, and putting service to themselves much lower on the priority list. That said, most of the names appearing on the lists for the best providers in each size category, also appeared in the lists for best adviser sales/marketing support, best adviser support post-sale, and best fee structure for advisers. Recordkeeper Selection Much of the value of an adviser to a plan sponsor is the ability to evaluate which providers are better at providing the type and level of service a specific plan requires. While some providers focus their efforts exclusively on certain market segments (and others should), there are those whose level of service stands out across multiple segments. For example, John Hancock Retirement Plan Services and Great-West Retirement Services appeared on both the less than $5MM segment and the $5MM to $50MM segment, and Diversified Investment Advisors, Fidelity, and Prudential Retirement were favored for plans with $5MM to$50mm and $50MM to $200MM. However, when it comes to the larger-plan segments, no single provider stood out. Ask any providers, and they will tell you that advisers can be tough customers, and that is illustrated in their provider favorability grades. While 21 recordkeepers received the threshold number of responses, not one received a very favorable rating from more than half of this year s respondents. In fact, the highest favorability rating went to T. Rowe Price at 44.6%. A natural inclination to focus on working with a select number of providers could account for the fact that 37 of the 58 providers listed as options in our survey received too few responses to be listed here (though those receiving many responses in the have never heard of category may have other issues). When they do recommend a recordkeeper to a plan sponsor, the fee structure to the plan is the most common consideration (92.9%), followed by the investment options (85.7%), and participant education (65.9%). Investment Options While past performance is not indicative of future results, that common wisdom does not appear to apply

2 to investment recommendations. Asked what criteria they use in deciding which asset managers and investments are appropriate for plan sponsor clients, the top pick for both was performance. However, in fairness, while performance clearly dominated the attention of adviser respondents, that was not the sole criterion. When selecting asset managers, 87.5% of advisers said performance was a top five criterion, followed by the fee structure for the plan (82.4%) and consistent investment style (77.2%). The three least commonly cited factors were the fee structure for the adviser (just 11.0% of advisers said it was a top consideration), supporting materials (13.2%), and wholesalers (14.7%) interesting when you consider how much time, effort, and money is spent by wholesalers and their employers to woo advisers. When selecting funds, performance versus benchmarks (87.2%) and five-year performance (71.4%) were cited heavily but, perhaps reflecting a growing sensitivity about the plan sponsor s fiduciary duties, the fee structure for the plan was a top five consideration for 78.2% of those surveyed. However, while performance was one of the most important criteria, shortterm performance was not specifically, only 22.6% of advisers say that one-year returns are one of their top five considerations in selecting a fund (though, said another way, nearly a quarter had it high on their evaluation criteria). Nearly all (93%) of those surveyed recommend asset allocation funds to their plan sponsor clients, and about three-quarters of those recommended target-date funds over target-risk, despite the recent scrutiny and criticism of some of those designs by regulators and legislators. Most commonly (62.2% of advisers), the lifecycle or lifestyle funds were non-proprietary (i.e., those not sponsored by the plan recordkeeper). About the same number of advisers recommended proprietary funds from the plan s recordkeeper and an asset-allocation overlay of funds in the plan (17.6% and 18.5%, respectively). Managed accounts are recommended by only 1.7% of responding advisers. Playing Favorites When it came time for favorites, most of last year s top picks made a repeat showing: T.Rowe Price, Vanguard, American Funds, American Century were the same top lifecycle suites (although last year American Funds and American Century tied and, this year, American Funds edged out American Century) and the top three lifestyle fund families were, once again, John Hancock, Russell, and Vanguard. When asked their most preferred fund families, American Funds and PIMCO once again took the top spots, but Vanguard, third in last year s rankings, dropped from the top five. Rounding out the favorite fund families were T. Rowe Price, Fidelity Investments, and Black- Rock. The PIMCO Total Return fund was once again the most recommended fund, while American Funds EuroPacific Growth, American Funds Growth Fund of America, and BlackRock Global Allocation were also repeats on the list (although not in the same order as last year). Keeping with an apparent international theme for favorites, this year, Thornberg International Value rounded out the top five. METHODOLOGY In June 2010, approximately 9,400 PLANADVISER adviser subscribers were asked to respond to an 80-question survey, developed by the PLANADVISER editorial and research teams. From that, 409 total usable responses were received from qualified plan advisers. The questions included in the survey pertained to size and scope of the adviser s qualified plan business, practice management, compensation, client service, and assessments of defined contribution providers and investment managers. In order to rate defined contribution recordkeepers, advisers had to answer affirmatively that they were personally involved in evaluating and recommending defined contribution plan providers/recordkeepers on behalf of qualified plan clients. For providers to qualify to be listed in the perception category, they had to receive a minimum of 50 favorability responses. In order to rate investment managers, respondents had to be personally involved in evaluating and recommending fund choices on behalf of qualified plan clients.

3 Favorite Recordkeeper Service Providers LESS THAN $5MM 1 John Hancock Retirement Plan Services 20.2% 2 Great-West Retirement Services 12.5% 3 American Funds 8.7% 3 Transamerica Retirement Services 8.7% 5 Nationwide Financial 5.8% $5MM-$50MM 1 Fidelity Investments 21.3% 2 Diversified Investment Advisors 7.4% 3 John Hancock Retirement Plan Services 6.4% 3 MassMutual Financial Group 6.4% 5 Great-West Retirement Services 5.3% 5 Principal Financial Group 5.3% 5 Prudential Retirement Services 5.3% $50MM-$200MM 1 Fidelity Investments 20.0% 2 New York Life Retirement Plan Services 13.3% 3 Charles Schwab 8.3% 3 Prudential Retirement Services 8.3% 5 Bank of America Merrill Lynch 6.7% 5 Diversified Investment Advisors 6.7% 5 T. Rowe Price 6.7% BEST ADVISER SALES/MARKETING SUPPORT 1 Fidelity Investments 16.9% 2 John Hancock Retirement Plan Services 14.1% 3 Transamerica Retirement Services 11.3% 4 Principal Financial Group 7.0% 5 Charles Schwab 5.6% 5 ING 5.6% BEST ADVISER SUPPORT POST-SALE 1 Fidelity Investments 11.1% 2 John Hancock Retirement Plan Services 9.7% 3 Principal Financial Group 8.3% 3 Transamerica Retirement Services 8.3% 5 Diversified Investment Advisors 6.9% 5 Great-West Retirement Services 6.9% BEST FEE STRUCTURE FOR ADVISERS 1 John Hancock Retirement Plan Services 10.5% 1 Great-West Retirement Services 10.5% 3 Diversified Investment Advisors 7.0% 3 Fidelity Investments 7.0% 3 Newport Group 7.0% Note: More than $200mm category did not have enough responses PERCEPTION OF RECORDKEEPER QUALIFIED RESPONDENTS z VERY z SOMEWHAT z NOT ADP Retirement Services % 30.2% 61.6% American Funds Distributors % 45.8% 19.3% Ascensus % 45.3% 37.5% Bank of America Merrill Lynch % 9.3% 77.8% Diversified Investment Advisors % 47.7% 10.8% Fidelity Investments % 43.6% 17.0% Great-West Retirement Services % 37.2% 19.2% The Hartford % 47.5% 27.5% ING % 34.2% 42.5% John Hancock Retirement Plan Services % 38.9% 23.3% Lincoln Financial Group % 35.8% 54.7% MassMutual Financial Group % 43.9% 19.7% Nationwide Financial % 34.8% 43.5% Newport Group % 58.8% 15.7% Paychex % 19.7% 75.8% Principal Financial Group % 34.7% 37.8% Prudential Retirement Services % 43.3% 20.0% The Standard % 53.7% 18.5% T. Rowe Price % 44.6% 10.7% Transamerica Retirement Services % 44.4% 20.8% Vanguard % 56.6% 26.4%

4 CRITERIA IN DECIDING APPROPRIATE RECORDKEEPERS (PERCENTAGE OF MENTIONS IN TOP 5) Brand recognition 34.9% Investment options 85.7% Wholesalers 16.7% Adviser support/value-added adviser services 58.7% Supporting materials 54.8% Fee structure for adviser 13.5% Fee structure for plan 92.9% Recommended by home office 4.0% Participant education 65.9% Reputation 53.2% Favorite Investment Managers & Funds ADVISER SUPPORT 1 American Funds 14.1% 2 BlackRock 6.4% 2 Fidelity Investments 6.4% 4 Columbia 5.1% 4 John Hancock 5.1% PLAN SPONSOR SUPPORT 1 Principal 12.3% 2 Fidelity Investments 8.8% 3 John Hancock 7.0% 4 American Funds 5.3% 4 JP Morgan 5.3% PARTICIPANT EDUCATION MATERIALS 1 Fidelity Investments 16.4% 2 American Funds 11.5% 3 John Hancock 9.8% 4 BlackRock 4.9% 4 Oppenheimer 4.9% PLAN SPONSOR EDUCATION MATERIALS 1 American Funds 14.0% 2 Fidelity Investments 10.5% 3 John Hancock 8.8% 3 JP Morgan 8.8% 5 Principal 7.0% QUARTERLY EVALUATION MATERIALS 1 Fidelity Investments 12.8% 2 JP Morgan 10.6% 3 American Funds 8.5% 4 BlackRock 6.4% 4 John Hancock 6.4% 4 Principal 6.4% PLAN PARTICIPANT SUPPORT 1 Fidelity Investments 18.9% 2 John Hancock 11.3% 3 Principal 9.4% 4 American Funds 7.5% 5 AllianceBernstein 3.8% 5 JP Morgan 3.8% 5 Transamerica 3.8% FUND FACT SHEETS 1 American Funds 20.0% 2 BlackRock 6.0% 2 John Hancock 6.0% 4 DFA 4.0% 4 Fidelity 4.0% 4 Oppenheimer 4.0% 4 PIMCO 4.0% PREFERRED FUND FAMILIES (NUMBER OF MENTIONS IN TOP 5) 1 American Funds 69 2 PIMCO 33 3 T. Rowe Price 30 4 Fidelity Investments 29 5 BlackRock 24 MUTUAL FUNDS MOST RECOMMENDED TO A PLAN SPONSOR 1 PIMCO Total Return 42 2 American Funds EuroPacific Growth 26 3 American Funds Growth Fund of America 19 4 Thornberg International Value 11 5 BlackRock Global Allocation 8

5 FAVORITE TARGET-RISK/LIFESTYLE FUND SUITE 1 John Hancock: JH Lifestyle 27.8% 2 Russell Investment Group: Life Points Target Risk 7.8% 3 Vanguard: LifeStrategy 6.7% 3 Manning & Napier Advisers: Pro-Blend 6.7% 5 AllianceBernstein: Wealth Strategies 4.4% FAVORITE TARGET-DATE/LIFECYCLE FUND SUITE 1 T. Rowe Price: Retirement Date Funds 29.2% 2 Vanguard: Target Retirement Funds 13.3% 3 American Funds: Target Date Retirement 8.0% 4 John Hancock: JH Lifecycle 5.3% 5 Fidelity: Freedom Funds 4.5% RECOMMEND TARGET-DATE OR TARGET-RISK TO CLIENTS Target-date/lifecycle 73.8% Target-risk/lifestyle 26.2% IF RECOMMEND TARGET-DATE OR TARGET-RISK FUNDS, THEY ARE: Proprietary funds from the plan's recordkeeper 17.6% Not the funds sponsored by the plan's recordkeeper 62.2% As asset-allocation overlay of funds in the plan 18.5% Managed accounts 1.7% IDEAL DC PLAN FUND LINEUP RESPONDENTS ACTIVE PASSIVE Target-date 82.1% 71.8% 28.2% Target-risk 59.0% 84.8% 15.2% Fixed income/stable value 91.0% 85.2% 14.8% Money market 61.2% 79.3% 20.7% Large cap value 95.5% 95.3% 4.7% Large cap core 89.6% 48.3% 51.7% Large cap growth 97.0% 94.6% 5.4% Small cap value 80.6% 97.2% 2.8% Small cap core 79.1% 56.5% 43.4% Small cap growth 77.6% 97.1% 2.9% Mid cap value 77.6% 95.2% 4.8% Mid cap core 78.4% 58.1% 41.9% Mid cap growth 75.4% 95.0% 5.0% International 99.3% 94.7% 5.3% REIT 67.2% 91.1% 8.9% Exchange-traded fund (ETF) 29.9% 50.0% 50.0% Hedge funds 7.5% 60.0% 40.0% Alternative investments 32.1% 88.4% 11.6% Emerging markets investments 70.1% 93.6% 6.4% CRITERIA IN DECIDING APPROPRIATE ASSET MANAGERS Performance 87.5% Manager Tenure 55.1% Brand recognition 35.3% Consistent investment style 77.2% Wholesalers 14.7% Adviser support/value-added adviser services 40.4% Supporting materials 13.2% Fee structure for adviser 11.0% Fee structure for plan 82.4% Recommended by home office 8.8% Participant education 16.9% Reputation 37.5% CRITERIA IN DECIDING APPROPRIATE FUNDS Performance (1-year return) 22.6% Performance (5-year return) 71.4% Performance vs. benchmarks 87.2% Manager tenure 60.2% Brand 25.6% Style drift 52.6% Adviser support 26.3% Supporting materials 16.5% Fee structure for adviser 11.3% Fee structure for plan 78.2% Plan demographics 31.6% Asset International, Inc. All Rights Reserved. No reproduction or redistribution without prior authorization. For information, call (203) or reprints@plansponsor.com