READER POLL: And the Most Over-Hyped Industry Trend Is…

Ours is, of course, an industry in which staying current, much less getting ahead, can be a more than full-time focus. But when it comes to the most “over-hyped” trends – well, NAPA Net readers found it to be a “target-rich” environment.

We provided readers with a long list of potential candidates – and given an opportunity to select as many as seemed applicable, readers identified the following:

51% – ESG
46% – Robo-advice
40% – Smart beta fund strategies
28% – ETFs
27% – Annuities and lifetime income products in a 401(k)
26% – Financial wellness
24% – Health Savings Accounts (HSAs)
24% – 3(16)
23% – 3(38)
23% – Managed accounts
18% – Collective investment trusts (CITs)
17% – Indexing
16% – MEPs
6% – Retirement income strategies

 

Other over-hyped candidates identified by readers that were not on the core list included:

Marijuana stocks!
Financial “literacy” – most employees are not literate and have no desire to be. They need financial solutions, not education!
Student loan repayment programs and MEPS
Financial advice based in part on health factors
Alternatives needed in the investment lineup
Open MEPs as the solution to all the world’s ills
Automatic enrollment

Single Most ‘Popular’

That said, asked to pick the single most over-hyped trend, the order was somewhat different – and the results much more spread out:

13% – Financial wellness
12% – ESG
11%- Annuities and lifetime income products in a 401(k)
10% – MEPs
8% – Managed accounts
7% – Smart beta fund strategies
7% – Health Savings Accounts (HSAs)
6% – 3(38)
6% – 3(16)
4% – ETFs
3% – Indexing
3% – Robo-advice
2% – Collective investment trusts (CITs)

Reader Comments

As for comments on these “over-hyped” trends, readers had a lot to say. Here’s a sampling:

“Exactly what is financial wellness?? Some give it away, some charge for it, some incorporate it with ‘wealth managers’ who may be pushing product, now we have products that attempt to quantify how ‘financially well’ your workforce is. It’s become a tremendous buzz word… the new ‘F’ word.”

“I think 3(38) is being sold to plan sponsors as complete relief from their fiduciary liability. I think 3(38) through likes of a **** just make it so that the non-dedicated retirement plan advisor can sell a plan, get paid and not service the plan. I think ESG has its place in certain plans and organizations, but it is now everywhere it seems. I believe robo-advice is good for the younger investors, but as an investor gets older there are things that a financial advisor provide that they can’t get from a robo-advisor. It is just a race to the bottom, everyone wants A++ service, but no one wants to pay for A++ service.”

“Top three: HSAs — trying to make margin for advisors for an account that is for paying medical expenses — to me like selling life insurance as an investment opportunity Smart beta — because active management can’t compete with index funds and are trying to find ways to gather assets CITs for smaller plans. Yes, they are less expensive to launch than 40 Act fund but, MF still have better transparency and independent verifiably.”

“CITs because there are a lot of funds that have same or lower net cost. CITs can have a lot of tracking error compared to the fund (usually negative) and only focus is on fee of CIT. Until plans are closer to $1 billion, don’t see many good CIT options.”

“Rarely have I come across any advisors or advisory teams that actually provide true discretionary management. I also think it is dangerous to over-promise fiduciary status since a plan sponsor cannot fully absolve themselves from their fiduciary liability.”

“MEPs may provide better investment pricing, but professionals on the administration side will suffer. Greatly.”

“Since accounts are valued 1x per day and you can get index funds at very low costs, why have an ETF in your plan?”

“As a TPA dealing with small clients, I don’t see any cost advantages of choosing an MEP. They would still need to do their own testing, etc., which is the bulk of the work for a plan with a new comp type formula, which is 99% of my clients.”

“Open MEPs are unattractive to our client base for two reasons: (1) Our small business owners are not sponsoring plans strictly as an employee benefit; the owners want to save big for themselves, and 2) Our clients want a ‘high touch’ customer approach, which is seemingly the opposite of being lumped together with a bunch of unrelated employers. Closed MEPs at least make more sense, especially for trade associations or businesses in a similar industry, where there is some commonality amongst the players.”

“Hardly a week goes by where I don’t see a managed account solution heavily marketed to me or a plan sponsor client of ours.”

“I keep hearing hype on the economy of scale that will make MEPs very low cost for small employers. With census, contributions, coverage, discrimination and top heavy being at the employer level, how does using a MEP save any work? Plus, eligibility and vesting are more complicated because service with any of the participating employers counts, including, at least for eligibility, service before firms joined the MEP. A single audit only saves money if the employer is large enough to need an audit for an individual plan. Access to lower cost investments are likely, but any other cost savings would only come about if someone cuts corners.”

“Models depend on generalized assumptions that almost certainly will not apply to any one individual which leads to gross misstatements of goals.”

“My opinion is that an annuity or a lifetime income product should be an ‘out of plan’ or ‘individual’ decision as people begin to retire and exit the plan. There are too many liquidity and portability issues that still need to be figured out.”

“A challenge with wellness is that it defies common definition and the benefits, while maybe intuitive, are hard to quantify.”

“Participant savings rates/outcomes Solid diversification based on age/time horizon. Monitoring expenses and investment options. Those are the keys… the rest is fluff.”

“40 ACT and indexing has become so inexpensive and easy to use, you almost have to ask ‘why’ when it comes to CITs, especially in the micro, small, mid and to an extent large market (macro – for sure, makes sense).”

“With fee compression hitting providers hard, managed accounts are seen as a way to restore margins. Managed accounts aren’t inherently bad, but I expect to see heavy fee compression hit managed accounts hardin the coming years.”

“We are a provider in the micro/small market, and almost everything we have done is to provide seamless automated integration of all the necessary plan functions, and if we were to have to add a layer and call it a MEP, it would actually lower efficiency and add costs. Not sure who in the industry is promoting the idea of a MEP so hard to policy makers.”

“If a fund fits your requirements otherwise (return, fees, trade limits, etc.) and it’s an ESG fund, then go ahead and add it to the plan for those that care. If it doesn’t, then don’t.”

“No way an open MEP provider is ever going to credit service with participating employers correctly; are open MEP providers really going to act as named 3(16)s like various bills require? (that responsibility can’t be outsourced).”

“Passively-managed investments have made MEPs obsolete. While 401(k) plans often need lots of assets to access the top actively-managed funds, even start-up plans with no assets can access the top index funds and ETFs – no economies of scale required. The kicker? These funds often outperform their actively-managed counterparts, net of fees. They also offer a clear and simple way for employers to meet their investment-related 401(k) fiduciary responsibilities.”

Thanks to everyone who participated in our weekly NAPA Net reader poll!

Add Your Comments

One Comment

  1. url url'>Roger Chandler
    Posted October 6, 2018 at 5:04 pm | Permalink

    The comments on Open MEPs in general seem disingenuous or uneducated. However, Open MEPs will not cure cancer.

    1. What they can do is offer an option for plans that are required to have an annual audit to be bundled together to greatly to decrease the the cost per plan.

    2. For small plans not requiring an audit, there are already aggregate solutions that leverage the power of the 3(16) to negotiate with a common group of vendors to lower cost and reduce administrative and fiduciary responsibilities for the Plan Sponsor. Yes, any aggregate solution should always have a 3(16), MEP or none MEP.

    Any program that allows the fiduciary to negotiate the administrative service fees on total assets, and the share class based on total assets, has a built in pricing advantage once it has scale. For plans less than $4M in assets this should be attractive. This would give small plans access to collective investment trust ( CIT) that are operated by a bank or trust company, and handles a group of pooled trust accounts. Collective investment funds group assets from individuals and organizations to develop a larger, diversified portfolio. These are used by very large companies in their 401(k) plans.

    A 3(16) with the proper technology can track credit service in a similar manner that participating employers correctly track track elegiblity. Not that big a deal.

    Open MEPs do not prevent an employer from choosing a plan design that will allow the owner to maximize his/her ability to put the maximum amount into their 401(k).

    Finally, Open MEPs and other aggregated solutions are not for everyone. The cost reduction is probable being over sold. However, the advantage is having administrative duties removed from Plan Sponsors who do not want to to be 401(k) experts. A combination of a strong 3(16) and 3(38) greatly mitigate the possibility of a plan being out of compliance and having fiduciary breeches by the Plans Sponsor. Plan Sponsor who still have residual fiduciary duties that include uploading 401(k) files in a timely manner and working with a financial advisor to make sure the company “running the plan” is performing as promised.

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend