Five years ago, my firm, CREATE Research, first partnered with Principal Global Investors to examine trends within the asset-management industry. Many things have changed since 2009; one of the biggest changes has been how defined benefit and defined contribution plans have altered their approach to asset-allocation strategies. The infographic below brilliantly details how investor behaviors have shifted from “wants” to “needs” over the past five years. I encourage you to download the entire survey, entitled “Asset Allocation Leaders, Laggards, and Newcomers: 2009 – 2013.” You can read the full trends analysis and other research at create.principalglobal.com.
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You likely chose to freeze your defined benefit (DB) plan for a variety of reasons – cost of capital, volatility of contributions, balance sheet impact – but have you considered what comes next?
There are two primary options:
- Terminate the plan and pay all the benefits in full – which most likely has higher expected costs but lower long-term market risk.
- Maintain the frozen plan – which most likely has lower expected costs but comes with a higher risk.
Preferences change. Tastes develop over time. You probably appreciate more and different foods than you did when you were a child. You change your diet to meet your needs – foods to benefit your heart, your cholesterol, your weight. You may even have a special menu designed specifically for you by a doctor or dietitian The investment industry is seeing a marked shift towards an era where this kind of evolution and customization will be key to success.
For years, investment managers have taken alpha to mean “beating a benchmark.” Alpha, as traditionally defined, is the excess return earned above a market index through active management. The manager was given a target and expected to beat it. That flavor of alpha is now giving way to solutions alpha. Read more
What may be done at any time will be done at no time.
– Scottish Proverb
Plan sponsors utilizing an unbundled service arrangement may be unintentional procrastinators without even knowing it. Let me explain.
Bundling has benefits. If you’ve followed my last few posts, you’ve seen how bundling a defined benefit (DB) plan with one service provider can mean cost and time savings, increased oversight and better overall service for the plan sponsor. Another advantage of bundling is eliminating a significant risk most plan sponsors may not even be aware of – the “Harriet factor”. Read more
If you watch television around the holidays, you’re bound to come across one of the best (IMO) holiday movies ever made – A Christmas Story. One of my favorite parts is when Ralph’s mom gets his brother and him ready to go out and play in the snow. He was so bundled up that he could barely move.
Ralph’s mom definitely bought into the idea of bundling. Do you see where I’m heading? Yes, I want to talk about the benefits of bundling when it comes to defined benefit (DB) plans. (Wow, right?) Read more