Plan Sponsors Look to Make Shifts in Investment Lineups

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Plan sponsors’ desire to reduce plan costs is substantially impacting their approach to investment menu design and their relationships with DC investment managers. But the impact of the resulting activity varies by plan as well as by asset manager. Overall, 7% of plan sponsors intend to add at least one manager to their investment lineup in the next year. At the same time, 2% plan to drop a manager and 16% intend to do a combination of adding and dropping managers, suggesting that the future is not necessarily secure for all firms.

Plan Sponsors Adding and Dropping Investment Managers

When asked specifically about the managers they will continue to use, 29% of plan sponsors intend to award new business to existing firms while only 15% plan to pull business away—evidence that plan sponsors are concentrating their assets with the smaller number of managers they know. Continue reading

6 Ingredients for Effective Institutional Thought Leadership

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We know how challenging it can be to get the attention of institutional investors, but luckily for asset managers, there is one tool in the institutional marketing toolbox that offers the best opportunity of getting noticed: thought leadership. When done right, institutional investors will not only read thought leadership from managers they are already doing business with, but will also consume pieces from unknown managers, offering firms a way in—and a chance to build a favorable brand impression.

According to a series of focus groups and one-on-one interviews we conducted with institutional investors, thought leadership materials must have six ingredients to craft effective thought leadership materials for this exclusive audience:

  1. Timely
  2. Unique
  3. Sophisticated
  4. Engaging
  5. Objective
  6. Credible

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Adapting to the New Normal

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Ready or not, the DOL fiduciary rule is here and changing everything. While many product providers and distributors have been preparing for months, the financial advisors they
rely upon are now beginning to feel the effects. Many advisors are regretfully watching their choice of available products constrict as their brokers/dealers eliminate certain products, asset managers and share classes. At the same time, advisors are facing higher hurdles in the form of additional disclosure and product justification, making their job of providing investment advice increasingly challenging.

While the industry’s heightened focus on fees is creating a windfall for passive managers, advisors are boosting their reliance on managed money or model portfolio solutions, effectively distancing the direct link between asset managers and advisors selling their products. This, in turn, is impacting the role of the wholesaler, shifting expectations from that of a product spokesperson to a technical industry expert. Continue reading

Is the Next Big Bank a Bank?

Amazon recently announced that its Amazon Lending service surpassed $1billion in small business loans over the past 12 months.

Wait, Amazon? Small business loans? Amazon isn’t a bank, but that doesn’t seem to matter. And that got me thinking, could Amazon be a bank for consumers, too?

Most likely, yes. Trust is the foundation of any relationship, especially when money is involved. Market Strategies’ financial services market research reveals that half of consumers would trust a company that does not specialize in banking to provide their banking. Of those, 26% would trust Amazon, 22% would trust Apple, 21% would trust Google and a whopping 63% would trust PayPal. Not surprisingly, younger consumers (58% of those 18-34) are even more likely to trust a non-bank to provide their banking.

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When Volatility Is Positive

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Sentiment toward the Investment Environment Is More Volatile among Ready-to-act Investors … and That Is Good News for the Financial Services Industry

While volatility is generally not well received in the money management industry, in the case of investor sentiment, volatility signals a level of engagement from investors who are likely to make an investment move in the near future. This increase in engagement makes it easier for asset managers and distributors to connect with these ready-to-act investors, who are closely monitoring the impact of both political and financial market events.

Volatile investor sentiment also represents an opportunity for asset managers and distributors to reach an already engaged audience at a time when many firms are facing the challenges of record-low trust levels, decreasing brand awareness and low brand differentiation among affluent investors. Put simply, conducting any type of outreach with an engaged client or prospect is comparatively easier than getting the attention of someone who is focused elsewhere. The key lies in knowing how to harness the power of investor engagement to bring in new business.

In order to gauge investor sentiment and monitor important changes over time, Cogent includes a series of questions in our monthly Cogent Beat Investor survey. Respondents are asked to identify how they feel “right now” about the current investment environment. Later in that same survey, we identify the investors who are planning to open an investment account in the next three months, letting us isolate investors who are “ready to act.” When comparing investor sentiment during the 2016 presidential election cycle—perhaps one of the most unpredictable periods in recent US history—among ready-to-act investors and investors who don’t plan to open an investment account in the near future, some interesting findings popped.

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Advisors Expect to Increase Use of Active Strategies

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Following a period in which advisor-controlled assets have been gradually shifting toward lower-fee, passively managed investment strategies, advisors still see an important role for active management. In fact, according to Cogent’s Advisor Brandscape, when advisors were asked to anticipate how their use of 15 specific asset classes would change, more advisors plan to increase their use of actively managed than passively managed equities over the next six months. This finding signals that advisors may be looking to diversify their clients’ portfolios, as more of clients’ core holdings have shifted to passive products. As expected, advisors in the broker/dealer channels are fueling the anticipated gains in actively managed strategies, while interest in active equities among RIAs is much weaker.

In addition, as advisors seek growth, four in ten (41%) plan to increase their allocations to emerging markets. Advisors’ growing interest in emerging markets represents a shift from last year, when only one-quarter of advisors said they plan to increase their investments in this area. Notably, interest in this category is primarily being driven by advisors in the National and Regional channels. Continue reading

Unlocking the Power of Institutional Consultants and Peers

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Contrary to popular belief, most institutional investors are not bombarded with a large volume of marketing collateral, so getting their attention should be easier than getting financial advisors’ attention in theory. However, in practice, it’s even more challenging for asset managers to reach this coveted audience.

The most immediate hurdle: institutional investors admit that materials from unfamiliar providers are easily and often discarded. Yet all is not lost for aspiring asset managers. Unsolicited content has a higher chance of being reviewed if the topic speaks to a current business need or if it’s introduced from a trusted source. Even during the RFP process—in which the sole focus is to consider a range of managers for a specific mandate—institutions are not conducting their own research. Instead, they are relying on consultant recommendations. That said, this decision point represents a rare time when institutions are willing to learn about a new manager and develop initial brand favorability for the future. Continue reading

Three Outcomes from the Investment Vehicle Convergence Trend

Tallying quantities of topic mentions in daily financial news feeds can reflect what’s on the minds of investors and industry professionals.

  • Exhibit A: regular coverage of the Department of Labor’s fiduciary rule.
  • Exhibit B: regular coverage of robo-advisors.
  • Exhibit C supports the theory in reverse: little news and, likely, little mindshare, though it deserves more attention. There is a fundamental change taking place in the way investment products are assessed, which is evolving the product ecosystem as well as how financial services market research firms explore those products.

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The Rules of Engagement

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External forces confronting the 401(k) industry including the Department of Labor fiduciary rule, provider consolidation due to pricing pressure, and the heavy volume of litigation over excessive fees continue to push plan sponsors to hone in on cost reduction and reevaluate expenses related to all aspects of plan administration and investments. Yet managing plan costs is just one of the two top challenges facing plan sponsors—plan sponsors are equally focused on the daunting task of adequately preparing participants for retirement.

Not shying away from the ultimate charge of participant retirement preparedness, plan sponsors are thinking creatively about how to better engage with employees. No longer content with automatic plan features that encourage inaction, more plans are now offering an employee match while others are extending beyond the 401(k) plan to a more holistic level of overall financial wellness. This broader approach takes more immediate needs such as credit card debt and student loans into account, thus providing a more realistic perspective for employees on their own role in retirement savings. Continue reading

Retirement Trends: Plan Sponsors Focus on Financial Wellness

Fact-Based Trends From Cogent Reports™    

Plan sponsors are increasingly looking for ways to encourage employee engagement with the 401(k) plan. This year two trends are rising to the top. Compared with previous years, more plans are providing employer matching contributions, thus providing an immediate incentive for participants who actively contribute to the plan. In addition, a relatively new trend shows nearly four in ten employers are considering a financial wellness program to help employees address more immediate financial priorities. In fact, the interest in financial wellness programs far outweighs interest in automatic plan features that are more narrowly focused on retirement accumulation as the end goal.

Overall, just 16% of plan sponsors currently offer a financial wellness program for their employees. But importantly, nearly four in ten (38%) say they are likely to consider adding such a program in the future. A view by plan size reveals that the larger employers are leading the charge, as more than one-third (36%) of Large-Mega plans currently offer a financial wellness program. Yet interest in adding a financial wellness program is relatively strong and consistent across plan size segments, with 37% of Micro plans, 43% of Small-Mid plans and 44% of Large-Mega plans open to considering this level of assistance for their employees. These findings suggest that the opportunity to strengthen client relationships is greatest for providers and advisors who think holistically about the financial health and security of the employees they serve. Continue reading