A recent survey found that 30% of intermediaries who recommend stable value offerings say they are doing so more this year than they did last year, and 35% say they expect that trend to accelerate over the next three years.
The Prudential survey of more than 400 plan sponsors and 300 intermediaries (advisors and consultants who work with sponsors) found that the top characteristics that drive plan sponsors and intermediaries to adopt stable value are capital preservation (54% for plan sponsors and 75% for intermediaries) and steady returns (54% of plan sponsors, 70% of intermediaries).
However, when it comes to the key issues that keep some sponsors and intermediaries from adopting stable value funds, a divergence appears. The top “trigger” of non-adoption for plan sponsors is tighter contract restrictions, cited by 54%, which was the same as the number two reason, “does not perform as well as other non-fixed income investments.” The top non-adoption “trigger” for intermediaries (cited by 69%) was their “higher expense ratio” (that turned out to be the top trigger for intermediaries), just ahead of the performance concern raised by plan sponsors above, though it was cited by 66% of intermediaries.
The survey also found that the factors that drive plan sponsors and intermediaries to recommend stable value funds differ in many cases from those that drive them to actually adopt stable value — and aren’t always among the factors they prize most when considering investment options for their plans.
Intermediaries Versus Plan Sponsors
The survey found that the factors that drove intermediary recommendations were returns versus other fixed income, that they could be easily liquidated by participants, that they helped increase participation rates, and that they helped increase savings rates. Those were all recommendation factors for plan sponsors as well, except for the easy liquidation by participants. Additionally, plan sponsors recommendation factors also included “steady returns in all market cycles,” which was a top adoption trigger for them as well.
From December 2009 through December 2014, assets in insurance company general account stable value products grew to $375 billion from $220 billion, a gain of 70%, according to Stable Value Investment Association annual and quarterly Stable Value Investment & Policy Surveys of SVIA members, 2009-2014. By June 2015, total stable value assets had reached $770 billion, representing about 11% of all assets in defined contribution plans, while the number of defined contribution plans offering stable value funds has continued to hold at about 50%.
As an asset class, stable value continues to draw interest — and dollars — ahead of a Securities and Exchange Commission rule that could diminish interest in money market funds.
Promoters and Detractors
Prudential Retirement’s Stable Value Adoption Research noted that among plan sponsors and Intermediaries with between $250<$500M in assets, stable value is viewed more favorably than its main competitor, money market funds — especially among intermediaries. According to the report, about a quarter of plan sponsors and intermediaries could be considered “promoters” of stable value, meaning they rank themselves highly likely (9 or 10 on a scale of 0 to 10) to recommend the asset class to others.
By contrast, they’re not nearly so keen on money market funds. Thirty-two percent of sponsors and 56 percent of intermediaries could be considered “detractors” of money market funds, meaning they rank themselves unlikely (0 to 6 on a scale of 0 to 10) to recommend the products, compared with 27% and 36% of sponsors and intermediaries, respectively, who are detractors of stable value funds.
