Forces of Change in an Evolving Retirement Market

Transcription

1 Forces of Change in an Evolving Retirement Market How regulation, innovation and demographics converge to create new opportunities for investment managers and plan sponsors alike

2 EXECUTIVE SUMMARY The US retirement market is maturing as transformative trends play out. Responsibility has shifted from employers to individuals, and defined contribution (DC) plans have become firmly entrenched as the primary US retirement solution. A closer look at DC reveals opportunities for players of all types, incumbents and new entrants alike. In identifying these opportunities, it becomes apparent that the historical drivers of retirement market growth will be the same drivers of growth tomorrow. These drivers demographics, regulation, investment vehicles and strategies are now coalescing around the goal of improving retirement outcomes and meeting the needs of plan sponsors, plan participants and retirees (Figure 1). As these forces converge, pockets of opportunity emerge for investment managers and plan sponsors. Continued innovations in these areas can vastly improve retirement outcomes when interwoven: asset allocation solutions, alternative investments, open architecture, product packaging, and customisation. More important, no product opportunity stands on its own in reaching better outcomes. Only through thoughtful collaboration can these themes come together to create a better retirement outlook for Americans. FIGURE 1 Forces of Change R REGULATION REGULATION Lifetime income illustrations Lifetime annuities as QDIA Fiduciary standard V VEHICLES BETTER RETIREMENT OUTCOMES D DEMOGRAPHICS DEMOGRAPHICS Increased contributions Delayed retirement INVESTMENT STRATEGIES Open architecture Income, annuities and alternatives Asset allocation solutions IS VEHICLES Flexible pricing CITs and ETFs Custom solutions Source: SEI. INVESTMENT STRATEGIES

3 HOW THE RETIREMENT MARKET HAS EVOLVED At $25 trillion in assets, the retirement market is central to the investment industry, having been shaped over the last 40 years by regulation, innovation and demographics (Figure 2). Nearly 59% of retirement assets now reside in individual retirement accounts (IRAs) and DC plans (Figure 3). This is a significant increase in share of total retirement assets from 30 years ago, when individually directed accounts represented only 19%, but defined benefit (DB) plans accounted for 69% of total retirement assets. FIGURE 2 Total US Retirement Assets $ trillions * *Data reflects year-end totals, apart from 2015, which reflects assets as at 30 June. Source: Investment Company Institute. FIGURE 3 Historical Share of US Retirement Market by Plan Type % of market share * IRAs DC Private DB Gov t DB Federal DB Annuities *Data reflects year-end figures for 1975 and 1995; 2015 reflects data as at 30 June. Source: Investment Company Institute. Forces of Change in an Evolving Retirement Market 3

4 The power of regulation The shift toward individual responsibility originated with the Employee Retirement Income Security Act of 1974 (ERISA) and the creation of the 401(k) plan (Figure 4). Initially, DC plans were envisioned as supplemental savings plans, joining employer-sponsored pensions and Social Security, to create a traditional three-pillar retirement savings programme. The environment changed; however, as costs and risks associated with maintaining a DB plan rose throughout the 1990s and 2000s, to a point where many plan sponsors have not only closed or frozen their DB plans, but most new companies now offer only DC plans. Nearly three out of four DB plans are closed to new hires and a significant portion have stopped accruals for participants (Figure 5). The Pension Protection Act of 2006 resulted in an increased use of automatic plan features due to safe-harbour protection. Specifically, this legislation has fueled the growth of automatic enrollment and the resulting assets invested in qualified default investment alternatives (QDIAs) such as target-date strategies. Fast forward to 2015, DC now accounts for approximately $7 trillion in assets. FIGURE 4 Impact of Regulation on the US Retirement Market ERISA begins shift toward individual responsibility and lays the groundwork for 401(k) plans The Pension Protection Act fuels growth of automatic enrollment and use of target-date strategies Source: SEI. DC plans were originally meant to provide supplemental savings alongside employer-sponsored pensions and Social Security Rising costs and risks in 1990s and 2000s cause some firms to close or freeze DB plans while many newer companies only offer DC plans By 2015, DC plans account for $7 trillion of retirement assets

5 FIGURE 5 Current Status of Firm s DB Plan Terminating Frozen 74% Closed to new hires 35% 3% 36% 26% Active Closed to all Source: SEI Survey, 2016 Defined Contribution Outlook. Investment vehicles evolve The second driver that has determined today s DC landscape is the evolution of investment vehicles. Without continued innovation, mutual funds and collective investment trusts (CITs) most likely would have been replaced with different products in DC plans. Improved transparency, trading and pricing advancements, new investment strategies, and lower fees all contribute to the solid foothold maintained by these vehicles in the retirement market. Approximately 75% of DC assets now reside in mutual funds and CITs. 1 At year-end 2014, mutual funds accounted for 56% of DC assets, up 233% over two decades, according to ICI data. 2 While the tracking of CIT assets does not go as far back as mutual funds, these vehicles have also demonstrated expansion in the last several years. It is estimated that CITs have grown to account for one-fifth of DC assets in Relative to other options, mutual funds and CITs have experienced consistent, if not growing, investor demand (Figure 6). Forces of Change in an Evolving Retirement Market 5

6 Use of other vehicles as core menu options including separate accounts, company stock and self-directed brokerage windows have declined. These options cumulatively represented about 30% of DC assets at year-end The two vehicles that have seen the largest decline of DC assets are company stock and self-directed brokerage. Seen largely as a fiduciary risk, 401(k) plans sponsored by public companies have focused on unwinding employee allocations to company stock. Self-directed brokerages also have risks associated with them, sometimes seen as a Pandora s box by plan sponsors. Exchange-traded funds (ETFs) also have faced considerable challenges in adoption on core investment menus, but have experienced some traction via asset allocation solutions. FIGURE 6 DC Plan Assets by Vehicle $ trillions Brokerage, ETF and other Company stock Separate accounts Collective trusts Mutual funds * 2020* 2025* *Data reflects actual assets as at 31/12/2011 and projections for all other years. Source: Strategic Insight. Favourable demographics for asset accumulation The sheer size of the boomer generation, combined with high deferrals from base salaries as well as the ability to take advantage of catch-up contributions, have contributed to the steady growth of DC plan assets. For year-end 2013, well more than half (61%) of 401(k) assets were held by participants in their 50s and 60s. 4 ICI analysis of participant accounts indicates that tenure, salary and age are correlated to 401(k) account balances. 5 Balances peak as plan participants approach retirement. Moreover, with approximately 10,000 Americans celebrating their 65th birthday every day for the next 15 years, retirement funds continue to accumulate. 6 That being said, the tide is slowly shifting from accumulation to distribution and with it a shift of emphasis from institutional to individual.

7 DEFINED CONTRIBUTION TOMORROW Regulation, product innovation and demographics are now converging to reshape the retirement market. It is estimated that DC assets will surpass $10 trillion in the next decade, up from $6.8 trillion at year-end Net flow rates into DC are projected to remain positive, albeit decreasing annually, averaging 1% over the next five years. While a large participant cohort is transitioning to retirement, younger generations, regulation and investment innovations will help to mitigate the effects of asset drawdown. Across DC plan types, 401(k) plans represent the bulk of assets ($4.7 trillion) and will continue to do so. 8 Regulatory focus on retirement outcomes is at an all-time high There are three notable areas of regulatory focus that have the potential to improve the retirement outcomes of Americans: lifetime income illustrations, lifetime annuities in DC and the fiduciary rule. These regulatory efforts create opportunities for asset managers and plan sponsors to be creative with annuities and investment strategies within DC plans. Lifetime income illustrations The regulatory agenda largely points to lifetime income, as demonstrated by several simultaneous efforts. The US Department of Labor (DOL) proposed requirements for lifetime income illustrations on participant statements may alter participant savings behaviour by creating awareness of retirement income needs. Academic research has shown that better information and understanding of income needs could impact behaviour when immediate action is available. Behavioural changes could result in increasing deferral rates, signing up for auto-escalation or deferring retirement. Lifetime annuities in QDIAs A second regulatory effort is the DOL and Treasury guidance on lifetime annuities in QDIAs. This guidance permits, under specific circumstances, the offering of a QDIA that includes lifetime income streams for participants. In addition, the guidance establishes certain safe harbours for the product sponsors to use when selecting an annuity provider. While the immediate impact may be nominal for boomers (based on low adoption rates thus far), lifetime annuities may drastically improve the retirement outlook of Generations X and Y. Forces of Change in an Evolving Retirement Market 7

8 Fiduciary rule The third effort that has recently gained the most attention (both pro and con) has been the proposed fiduciary rule. While the impact of the DOL s efforts to apply a fiduciary standard to IRAs can only be assumed at this point, it is possible that assets will remain in employer-sponsored retirement plans longer, stymying the rate of rollovers into IRAs. The reasoning behind this projection is tied to the modification of the fees related to the provision of IRA services that is likely to take place following the finalisation of the rule. As a participant in a 401(k) plan, a participant generally has access to lower-cost investments that have been reviewed by a plan fiduciary and, most likely, are not available for direct investment outside the plan. Under the revised rule, both the recommendation to roll over assets to an IRA, as well as the recommendation on what products in which to invest those IRA assets, would be viewed as fiduciary advice under the proposed rule. This would, in turn, subject the advisor to stringent fiduciary requirements under ERISA as well as ERISA s prohibited transaction rules. Therefore, an advisor bound by a standard to place clients interests ahead of the advisor s own interests would be committing a prohibited transaction if he were to invest in a product that results in a variablebased fee (that is, not a wrap or other flat fee). This may move many low-cost IRA service providers, who generally tend to rely on fees and commissions, out of the IRA market all together. These sweeping changes will challenge plan sponsors, investment managers and broker-dealers to adapt, but will also offer opportunities to those who are ready to evolve and innovate. Product innovation focused on outcome-oriented solutions There are several threads of innovation that have emerged in DC over the recent years. While each thread plays a role individually, only when woven together do they create a strong fabric. These innovations include asset allocation solutions, alternatives, open architecture, product packaging, and customisation. Asset allocation solutions The strategies standing to benefit the most from the regulatory changes are solutions-oriented strategies (Figure 7). Increasing adoption of automatic plan features and innovation with retirement income has increased preference for target-date strategies and managed accounts as QDIAs. As a result, target-date assets grew quickly on the back of strong flows over the past decade, in stark contrast to target-risk strategies, which experienced anemic overall growth over the same period (Figure 8). Target-date approaches appear to be a clear favourite of regulatory agencies, as identified by guidance related to the use of lifetime annuities noted above. Current areas of innovation within the $1.3 trillion target-date market include tactical flexibility, use of alternative strategies and open architecture. 9

9 Managed accounts are another asset allocation solution that provides sophisticated drawdown strategies, often taking into account specific guaranteed income products. According to PLANSPONSOR, managed accounts oversee $200 billion in participant assets. Managed payout funds are a more recent addition to the retirement solutions scene. Structured to provide a consistent, inflation-adjusted monthly income stream for a fixed term or the life of the retiree, these funds resemble annuities. But they differ in some important ways, not least of all by being less expensive and more flexible. Payouts, however, might vacillate significantly depending on fund performance. In any case, this type of fund, where the manager is responsible for distribution in addition to asset allocation, could well become another popular default option. FIGURE 7 QDIAs Selected 12.8% Balanced funds 8.6% Target risk 4.5% Managed accounts 0.7% Stable value 1.0% Other 72.1% Target date 0.3% Money market Source: Plan Sponsor Council of America (PSCA). FIGURE 8 Cumulative Net Flows to Target-Date and Target-Risk Funds: $ billions Target risk Target date Source: Strategic Insight. Forces of Change in an Evolving Retirement Market 9

10 A growing role for liquid alternatives Investment innovation in liquid alternative strategies aptly fits into the target-date tide, as many portfolio strategists call for a 10% to 20% allocation to alternatives in order to be effectively hedged against daily risk and outlier events. The potential for liquid alternatives is quite large, should a minimum allocation be achieved. For perspective, if all target-date strategies were to adopt a modest 7% allocation in liquid alternatives, then a $90 billion market opportunity is created. Outside of target-date, there are opportunities for multi-strategy alternatives to be offered on the core menu or as a specialty strategy only available through a managed account. The scope of alternatives available is also expanding, as asset classes such as private equity are increasingly made available for embedding into retirement plans. Liquid alternative assets plateaued in 2015 (Figure 9), but certain categories continue to gain momentum, notably multi-strategy. The potential for inclusion in retirement plans may very well reinvigorate product development efforts amongst managers, leading to greater scale as well as scope. FIGURE 9 Liquid Alternative* Fund Assets $ billions Assets Flows *All US mutual funds and ETFs in Morningstar s Alternative categories. Source: Strategic Insight.

11 Open-architecture expansion Manager diversification has the potential to improve participant outcomes, but the bulk of DC assets and solutions-oriented products were historically invested by managers affiliated with the plan s recordkeeper. The trend toward open-architecture plans and the defined contribution investment only (DCIO) market is driven by the fact that few investment organisations can manage all strategies well and that having all assets managed by one manager has embedded risks. In addition, the regulatory drive toward fee transparency has led to an unbundling of services separating back-office services such as administration and custody from investment management. Some of the largest bundled providers are those with strong target-date and stable value businesses. The opportunity of DCIO cannot be ignored if managers want to take part in the new retirement landscape. Strategic Insight estimates that DCIO accounted for $3.4 trillion, or 57%, of total DC-managed assets (excluding self-directed brokerage and company stock) at year-end Not factored into this sizing is the trend of target-date funds featuring third-party managers which accounts for another $100 billion of assets. 10 DCIO assets are projected to account for 63% of the market by Custom solutions Plan sponsors are evaluating custom asset allocation solutions to meet unique plan demographic needs and to incorporate sophisticated investment strategies in a cost-efficient manner. In February 2013, the DOL released guidance on target-date fund selection, in which one of the tips was to Inquire about whether a custom or nonproprietary target-date fund would be a better fit for your plan. Custom solutions have long been considered an option available at only the largest plans, but increasingly customisation is moving down-market in a cost-efficient manner. There are three ways in which customisation is moving down-market: participant advice, managed account solutions and turnkey solutions. Forces of Change in an Evolving Retirement Market 11

12 CASE STUDY 1 A large corporation required a pooled vehicle solution A large US-based global corporation with several operating entities made a strategic decision to divest its core business into multiple business units. The company needed a solution that enabled them to preserve the open-architecture design and economies of scale that they had achieved in their $12 billion 401(k) plan. The company approached Callan Associates* (and eventually SEI Trust Company) to help them explore converting their existing separate account structure within their 401(k) plan into a multi-manager, multi-fund collective investment trust. Because a CIT structure expressly permits the commingling of assets across multiple plans, it allowed the company to provide the same investment fund lineup, while supporting the seamless transition for 401(k) participants as the company split into two business units and split its 401(k) plan into two separate plans. To accommodate an investment platform of this size and complexity, the CIT needed to have a number of sophisticated operational and investment attributes including: Investment advisory breadth and expertise to conduct due diligence and ongoing fiduciary oversight for 21 different multi-manager funds employing 26 separate sub-advised and/or sub-fund mandates across a complete range of asset classes and strategies Operational flexibility to invest trust assets directly into securities, other CITs and mutual funds, and support the seamless replacement, termination, or addition of sub-advisors or sub-funds within the multimanager structures with no impact on participants Automated trading support for sophisticated daily cash management and rebalancing algorithms employed across target-date funds, asset class funds, sub-funds and separate accounts NSCC trading support for all funds offered, and seamless integration with the recordkeepers and plan custodians for the two plans Multiple share classes to support differing daily fee accrual requirements across the two companies Customised and sophisticated quarterly multimanager fund fact sheets meeting disclosure requirements for 401(k) options, including DOL requirements for QDIA options Institutional quality reporting on a daily, monthly and quarterly basis. In addition, consulting support for the investment staff and oversight committee at each of the two companies This was a highly sophisticated and complex project that needed to be completed in less than six months. In this time frame, SEI Trust Company and Callan: Identified and hired a new custodial bank Negotiated all 26 sub-advisory or fund-trading agreements Opened 21 new funds Built a new trading system to support the rebalancing and the daily cash flow requirements of the CIT structure The approximately $12 billion conversion was completed on time and without any operational issues. From a participant s perspective, the conversion was completely seamless; trading continued with business as usual. The CIT offers the company cost efficiencies because both entities will benefit from investment into one pooledfund vehicle structure. Finally, the CIT structure provides efficiency and flexibility to offer a customised, effectively priced solution for the participants of the plans invested in the CIT. * Callan is an employee-owned investment consulting firm that provides institutional investors with tailored strategies that are uniquely backed by proprietary research, an industry-leading database and ongoing fiduciary education.

13 Pricing and packaging of investment strategies Choosing the most appropriate vehicle structure for a plan can assist in reaching the goal of better outcomes; particularly as this decision relates to investment strategy, manager risk mitigation and fee awareness. As such, the packaging of investment strategies is another area ripe with innovation. Specifically, DCIO innovation manifests itself by boutique managers implementing turnkey solutions to offer their strategies in various vehicles. Turnkey solutions for CITs help to ease barriers of regulatory concerns, while turnkey solutions for mutual funds ease product development challenges for startups and facilitate offering institutional strategies to new markets. Fee disclosure and transparency are driving further innovation in product packaging. Specifically, the release of the final guidance and implementation deadlines for service provider and participant fee rules [408(b)(2) and 404(a)(5), respectively] as set forth by the DOL, facilitates a plan sponsor s understanding of the available investment options and how they compare. Pricing innovation in mutual funds (notably share classes without embedded distribution fees, often referred to as R-6 share classes) will help to further solidify the vehicle s position in the DC market. As at September 2015, $291 billion resided in R-6 share classes. Notably, retirement share classes are being introduced not only with new funds, but are also being added to existing funds in response to demands for more transparency and lower fees. 12 CITs typically enjoy a lower-cost advantage over mutual funds primarily due to their differing regulatory requirements. However, a representative and reliable comparison between mutual fund expense ratios and their CIT counterparts is not available due to current data limitations. Collective Investment Trusts The basics What are they? CITs are pooled institutional investment vehicles that are intended for use by qualified retirement plans and governmental plans, and are not publicly available. The trust must be established by a bank or trust company that will act as a fiduciary and maintain the ultimate responsibility for the discretion and control of the trust. Who governs them? CITs are regulated and governed at the federal or state levels by the Office of the Comptroller of the Currency (OCC) or by state banking entities. Unlike mutual funds, they are exempt from SEC regulation and are not subject to the Securities Act of 1933 or the Investment Company Act of In what markets are they available? CITs are available in both the DC and DB market. However, these vehicles cannot currently be used by most 403(b) plans, some 457(b) plans, 457(f) plans, funded welfare plans or IRAs. The benefits Pricing: Generally CITs have a low-cost advantage over mutual funds due to different regulatory requirements and other factors. Flexibility: Ability to offer multiple fee classes to clients, which includes a sliding fee schedule based on invested assets. Further, distinct service fee share classes can be offered. Speed-to-market: The setting up of a CIT could take 30% to 50% less time than launching a comparable mutual fund while most often costing less. NSCC trading: Trading through the NSCC allows CITs to provide the same operational efficiencies as mutual fund structures. Forces of Change in an Evolving Retirement Market 13

14 Despite this, across the gamut of asset classes, CITs offer daily liquidity and high transparency for plan sponsors with a moderate degree of customisation, which can help fiduciaries design an optimal plan for their participant population. Unlike mutual funds and ETFs, CITs are not available in the retail market (Figure 10). FIGURE 10 Comparison of Investment Vehicles Used in DC Plans MF CIT Separate Accounts ETF Daily liquidity Yes Yes Variable Yes Transparency for participant High Low Low High Transparency for plan sponsor High High Moderate High OPEN Availability in retail market Yes No No Yes Customisability Limited Limited High No Source: SEI. FIGURE 11 Investment Vehicles Used by Size of DC Plan % of plans 100% 80% 60% Micro (<$5M) Small ($5M - $50M) Mid (>$50M - $200M) Large (>$200M -$1B) Mega (>$1B) Overall 40% 20% 0% Other ETFs * CITs Separate Accounts MFs *Outside of brokerage window. Sources: PLANSPONSOR and SEI.

15 The economics of the DC market are changing in other ways as well. The majority of plan sponsors currently pay recordkeeping fees via some form of revenue sharing (Figure 12). Meanwhile, a growing number of plan sponsors are shifting to a fixed fee per participant system. Four out of 10 sponsors recently surveyed by SEI say their organisation now uses this type of arrangement, despite it being historically prevalent only amongst larger plans. 13 FIGURE 12 Revenue Sharing Arrangements Outside funds only Other 12% 9% 47% 32% Recordkeeper only Recordkeeper and other outside funds Source: SEI Survey, 2016 Defined Contribution Outlook. CASE STUDY 2 Attracting institutional US retirement plan assets with a CIT Firm Profile: A large Midwest investment firm offering US, global and international investment strategies for individuals and families, financial advisors, and institutional clients (including pension funds, foundations and endowments). The firm was founded upon the belief that delivering successful investment results for clients requires a consistent investment philosophy, a commitment to superior investment research and a high level of customer service. Over the years, the firm s clients have grown but its philosophy and beliefs have remained unchanged. In 2008, the firm began exploring opportunities to expand its product offerings and started investigating a collective investment trust (CIT) vehicle as an option for the DB or DC business within the US retirement market. The firm's challenge was that it did not fully understand the operational infrastructure or administrative requirements surrounding a CIT, nor did it have the expertise in-house. Although CITs were not a new product, the firm realised that many plan sponsors weren t comfortable with the vehicle either, nor were they familiar with the nuances surrounding the vehicle. In its research, the firm determined that the DB market was much more comfortable and informed about CITs. So it began targeting DB plans directly, working in tandem with consultants and other intermediaries who had direct access to the DB plan end client. Having CITs that had lower expense ratios than mutual funds and offered more flexible pricing structures were key selling points. Additionally, a CIT could be launched much more quickly than a mutual fund and had the flexibility to be tailored to the DB plan. The firm recognised it needed an experienced partner to launch its first CIT, so it partnered with SEI Trust Company. SEI provided the expertise, technology and infrastructure needed to not only establish the CIT, but to educate the firm and its end client on the value and benefits of the vehicle. The CIT has enabled the firm to offer its DB plan clients a lower expense vehicle, which has significantly helped to strengthen and retain its relationships. With a CIT in place, the firm has also been able to compete in the market to win new client relationships. Forces of Change in an Evolving Retirement Market 15

16 Participants becoming more aware of a lack in retirement preparedness Many baby boomers are extending their working years. According to a recent Transamerica survey, 59% of workers in their 50s and 82% of those in their 60s or older expect to work past age 65, and about half of all workers expect to work in some capacity after they retire. 14 Echoing this sentiment are 2015 findings from the Insured Retirement Institute (IRI), indicating that 36% of boomers plan to retire either at or beyond age 70, nearly double the number of boomers that reported the same projected retirement age back in The reluctance to retire may be driven by many factors, but as the Transamerica study highlights, lack of adequate savings and the need for income are the two largest drivers. Ultimately, this reluctance to retire will result in increased contributions to retirement accounts and the preservation of assets already saved. Meanwhile, younger plan participants are showing signs of saving even more than their elders. Millennials, who now outnumber baby boomers, have begun to save more, putting aside a median 16, % of their income, according to a study by Fidelity. OBSTACLES AND OPPORTUNITIES One challenge in tapping the DC-market opportunity is the fact that assets are highly concentrated in a few large plans. In fact, less than 1% of DC plans control 70% of DC assets. 18 Despite the attractive mandate size, the institutional segment is highly challenging due to the asset concentration, abundance of competition, fee pressure, gatekeeper control and length of sales process. There is also the continued growth of passive investing and the accompanying pressure on fees, making it increasingly difficult for active managers to compete in the DCIO space. Given the sheer size of the US retirement market, international competitors view it as an opportunity to expand outside their natural borders. Non-US managers often face an array of additional challenges in establishing a presence as a DCIO provider, starting as early as product development and all the way through to the sales process. Understanding the market, seeking the right business partners, and building an effective distribution strategy are common hurdles experienced by non-us managers. Despite all of these hurdles, the US retirement market offers tremendous opportunities to plan sponsors and investment managers alike. Regulation, innovation and demographics are converging to improve outcomes for future generations of retirees, presenting plan sponsors with the opportunity to adapt and better serve their participants. Asset managers are also in the position to make changes that can benefit not only their own bottom lines, but also have a profound impact on the lives of countless retirees. By embracing complementary product innovations asset allocation solutions, alternatives, open architecture, product packaging and customisation retirement prospects will gradually improve, giving way to more confident futures.

17 CASE STUDY 3 A non-us manager, leverages the CIT structure and its US affiliates to enter US retirement market Fiera Capital Corporation is a leading publicly traded, independent global asset management firm headquartered in Montréal, Canada. In addition to Canada, Fiera also has US-based SEC-registered affiliates with offices in New York, Boston and Los Angeles. Operating as a full-service, multiproduct investment company, Fiera offers international equity and fixed-income management as well as depth and expertise in asset allocation and alternative investment strategies. To succeed long term in the asset management industry, Fiera believed that they needed to create scale in their operations and expand their business globally into unique markets. Fiera began researching opportunities to enter the institutional business of the US retirement market. Prior to entering the market, however, they needed to fully understand the risks, costs and competitive landscape associated with the business segment. In their research of the DC segment of the retirement market, Fiera found that the regulatory and compliance mandates associated with managing institutional assets were challenging. Additionally, brand-name recognition in the US retirement business was paramount. Large cross-border, multinational sponsors exist in both Canada and the US, and Fiera realised that there were more similarities than differences between the US and Canadian institutional business. There is a shift transforming the institutional market, with endowments and large pension plans leading the way. The world of institutional investment consultants had been much more fragmented and insulated; today they are located across the globe and are adapting their organisational structures to accommodate the US institutional investment opportunity. To complicate matters more, convergence amongst traditional and alternative investments means that asset managers can no longer compete in silos. Fiera determined that they had two choices to enter the US institutional retirement market: 1. Organically develop the expertise and knowledge needed to establish their operations and expertise in-house. 2. Identify an established business partner with proven expertise in the institutional asset management business. Because Fiera wanted to fast track their entry into the US DC market, they did not want to invest significant time and resources to build expertise in-house. Instead, they looked for a business partner and a turnkey solution to help them get established quickly. At the time, Fiera was about a year away from considering a CIT vehicle. However, they were awarded a mandate and quickly needed to create a pooled vehicle to enter the DC market. In their quest for a business partner, Fiera identified SEI Trust Company as an expert in the legal, compliance and reporting requirements for CITs that also had a proven track record in the market. Most important, SEI Trust Company would serve as an ERISA fiduciary and could provide ongoing advice and oversight unique to a CIT. Leveraging SEI s turnkey solution, Fiera could benefit from a daily valued pooled-investment vehicle offering lower costs, operational efficiencies and the flexibility of multiple share classes; all of which were important to them and their client. Fiera Capital, Inc. the SEC-registered affiliate of Fiera Capital Corporation, was retained by SEI Trust Company to act as a subadvisor for their international equity CIT. Forces of Change in an Evolving Retirement Market 17

18 About SEI SEI (NASDAQ:SEIC) is a leading global provider of investment processing, investment management and investment operations solutions that help corporations, financial institutions, financial advisors and ultra-high-net-worth families create and manage wealth. As at 31 December 2015, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $670 billion in mutual fund and pooled or separately managed assets, including $262 billion in assets under management and $408 billion in client assets under administration. For more information, visit seic.com. About SEI Trust Company SEI Trust Company (the Trustee ) serves as the Trustee of the Fund and maintains ultimate fiduciary authority over the management of, and the investments made, in the Fund. The Fund is part of a Collective Investment Trust ( the Trust ) operated by the Trustee. The Trustee is a trust company organised under the laws of the Commonwealth of Pennsylvania and a wholly owned subsidiary of SEI Investments Company (SEI). About SEI s Investment Manager Services Division Investment Manager Services supplies investment organisations of all types with advanced operating infrastructure they must have to evolve and compete in a landscape of escalating business challenges. SEI s award-winning global operating platform provides asset managers with customised and integrated capabilities across a wide range of investment vehicles, strategies and jurisdictions. Our services enable investment managers to gain scale and efficiency, keep pace with marketplace demands, and run their businesses more strategically. SEI presently partners with more than 300 traditional, alternative and sovereign wealth managers representing more than $15 trillion in assets, including 32 of the top 100 managers worldwide. For more information, visit seic.com/imservices. About Strategic Insight For the past 30 years, Strategic Insight has been at the forefront of thorough, unbiased mutual fund industry research and business intelligence. We believe in the mutual fund industry. Our core mission has always been to strengthen the industry and help our clients succeed in the global marketplace by providing them with the research, data and analytical support they need to identify product and distribution opportunities and make smart business decisions. As sincere industry advocates, we provide products and services to a wide range of clients, including executives from more than 200 investment management and insurance companies, distributors, investment banks, hedge funds, consultants and law firms. Strategic Insight sets the standard for trusted business intelligence and mutual fund analysis. We offer the most comprehensive, accurate mutual fund information available to help our clients direct their efforts wisely and grow their businesses. Strategic Insights parent company, Asset International, delivers critical, cutting-edge data, research and marketing programmes to mutual fund companies, banks, asset managers and insurance companies worldwide.

19 SOURCES 1 Strategic Insight, an Asset International company. 2 Investment Company Institute. The U.S. Retirement Market, First Quarter June Strategic Insight, an Asset International company. 4 Investment Company Institute. 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in ICI Research Perspective 20, no. 10, December Investment Company Institute Investment Company Factbook. 6 Pew Research. Baby Boomers Approach 65 Glumly. 20 December Strategic Insight, an Asset International company. 8 Investment Company Institute. The U.S. Retirement Market, First Quarter June Strategic Insight, an Asset International company. 10 Strategic Insight, an Asset International company. 11 Strategic Insight, an Asset International company. 12 PLANSPONSOR. Inaccurate Facts: The fees and expenses of 401(k) and other defined contribution (DC plans). January SEI. Defined Contribution Outlook: Do DC Plans Need to be Redesigned? January Transamerica Center for Retirement Studies. 16th Annual Transamerica Retirement Survey. August Insured Retirement Institute. Boomer Expectations for Retirement April Pew Research. This year, Millennials will overtake Baby Boomers. 16 January Money.com. Millennials Are Outpacing Everyone in Retirement Savings. 7 January PLANSPONSOR Recordkeeping Survey. June Forces of Change in an Evolving Retirement Market 19

20 United Kingdom 1st Floor Alphabeta Finsbury Square London EC2A 1BR +44 (0) Ireland Styne House Upper Hatch Street Dublin 2 Ireland Corporate Headquarters United States 1 Freedom Valley Drive P.O. Box 1100 Oaks, PA managerservices@seic.com seic.com/imservices Information provided by SEI Investments Global Fund Services Limited (Reg. in Dublin No ), SEI Investments Trustee & Custodial Services (Ireland) Limited (Reg. in Dublin No ), and their affiliates, which are all wholly owned subsidiaries of SEI Investments Company. SEI Investments Global Fund Services Limited and SEI Investments Trustee & Custodial Services (Ireland) Limited (Styne House, Upper Hatch Street, Dublin 2, Ireland) are authorised by the Central Bank of Ireland under the Investment Intermediaries Act This material is not directed to any persons where (by reason of that person s nationality, residence or otherwise) the publication or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not rely on this information in any respect whatsoever. This information is provided for educational purposes only and is not intended to provide legal or investment advice. SEI does not claim responsibility for the accuracy or reliability of the data provided SEI EU (3/16)