Products July 8, 2021

Investment Product and Service Launches

MFS makes changes to CIT line and Diligend and eVestment partner on data exchange platform.

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Art by Jackson Epstein

MFS Makes Changes to CIT Line

MFS is making a series of enhancements to its collective investment trust (CIT) line. The enhancements include changes to the unit class structure, lower investment minimums and reductions in management fees or expense caps on several CIT funds. The firm is also adding increased pricing flexibility for mandates over $200 million.

“We believe these enhancements further align MFS with the needs of retirement plan fiduciaries and participants and ensure the firm’s long‐term competitiveness in the U.S. retirement marketplace,” says Sean Kenney, managing director for defined contribution (DC) at MFS. “The defined contribution market grows in complexity year over year, and a robust CIT ecosystem is driving CIT adoption by plan sponsors of all sizes with diverse requirements. We are pleased to be able to offer the enhancements to address plan fiduciaries’ and participants’ evolving needs.”

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Highlights of the enhancements include the following:

  • MFS now has Class 2, Class 3 and Class 4 unit‐class offerings, with investment minimums of $0, $50 million and $100 million, respectively;
  • The firm will create dedicated unit classes for mandates above $200 million and certain sub-advised and outsourced chief investment officer (OCIO) opportunities; and
  • MFS is dropping the expense cap from 10 basis points (bps) to 5 bps on four international equity CITs and its Global Aggregate Opportunistic CIT.

“The new unit class structure provides the flexibility required to align with larger, more complex plan sponsor mandates, especially those driven by sub-advisory and OCIOs, while providing a compelling value proposition to small and mid‐size plans,” Kenney adds.

Diligend and eVestment Partner on Data Exchange Platform

Diligend, a cloud-based due diligence software provider built for asset allocators, and eVestment, a Nasdaq company that focuses on institutional investment data and analytics, have announced an agreement under which eVestment data will be available through the Diligend platform.

Diligend offers a data exchange platform that automates the tasks and data requests institutional investors and consultants frequently make of asset managers. The platform enables one-to-one, periodic and ad-hoc data collection efforts, which can be difficult to manage as the information is often tied to individual, static documents. Diligend’s tools transform this process by providing a fully custom, digitized and automated due diligence questionnaire tool combined with a full featured workflow and analytics platform. The platform makes requesting data, distributing data requests and initiating follow-up reminders easy to manage, while also automatically flagging answers, tracking changes and aggregating data for benchmarking.

The firms say this agreement will allow clients of both eVestment and Diligend to complete more of their due diligence process via one technology platform. The data and technology tools that will facilitate this data-sharing and due diligence effort between eVestment and Diligend are set to launch in the coming months.

“Collecting and analyzing manager data and documents can be challenging and cumbersome for investors,” says Wissem Souissi, Diligend founder and CEO. “The difficulty in managing the questionnaire distribution process and performing sufficient ongoing due diligence with limited resources limits the level of oversight and increases the operational risk for investors. Diligend solves this through data centralization and process automation. By aligning with eVestment, we’ve made the entire due diligence process more efficient and scalable.”

“Eliminating unnecessary work, risk and complexity in the due diligence process provides opportunities for better engagement between investors and asset managers and, ultimately, better results for the work both are doing,” says eVestment Head of Strategic Partnerships Lisa Terwilliger. “We are excited to add Diligend to our network of technology providers for our joint clients.”

Data and Research July 8, 2021

Participants Need Guidance on Addressing Retirement Risks

Providing Social Security education and guaranteed income investment options are among suggestions for how plan sponsors can help.

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Americans are more worried than ever about a variety of retirement risks, including concerns about health care costs (71% in 2021 vs. 65% in 2020), the rising cost of living (67% vs. 59% in 2020), the impact of a market downturn on retirement savings (66% vs. 54% in 2020) and running out of money before they die (59% vs. 56% in 2020), according to the “2021 Retirement Risk Readiness Study” from Allianz Life Insurance Co. of North America.

And a report from Bank of America Merrill’s chief investment office, “Tackling Retirement Risks,” notes that these are the key risks that retirees face. The paper suggests ways to address these potential issues and offers lessons about steps plan sponsors and advisers can take to help retirement plan participants plan for them.

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The Bank of America Merrill report says the choice of when to claim Social Security is among the most important financial decisions individuals will make. Its chief investment office research shows that waiting to claim Social Security can potentially boost the expected lifetime benefits for an individual by as much as $55,000 to $70,000. However, the report notes that claiming strategies depend on each individual or couple’s circumstances. For example, those who have very short life expectancies (due to poor health or other reasons) should consider claiming benefits at 62, the earliest possible age.

Studies have shown most Americans have a great misunderstanding of Social Security rules and benefits, so plan sponsors and advisers can help by educating participants.

The Allianz survey found respondents have a preference for protection products. When asked whether they would rather have financial products that have the potential for big gains, but also the potential for big losses, or products that protect from big losses, but come with smaller gains, nearly seven in 10 (68%) respondents said they would prefer the protection product.

Meanwhile, the Bank of America Merrill report suggests allocating assets to a lifetime income annuity is another way to address key retirement risks.

“A key question to consider in preparing for retirement is whether your guaranteed lifetime income from Social Security, pension and any additional annuities will cover your essential living expenses. If not, you may want to consider buying a lifetime income annuity to help close the gap. Suppose, for example, you will be receiving annual pension and Social Security income of $40,000 but will need $50,000 to cover essential expenses. You can purchase an annuity that will pay, in monthly installments, $10,000 per year for the rest of your life,” the Merrill report says. The firm adds that “annuities are the only financial instruments available today that, like Social Security and pensions, can offer a lifetime income regardless of how long a person lives.”

Provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act relieved some of the concerns plan sponsors had about offering annuities in their retirement plans. And as more plan sponsors show interest in offering annuities to participants, advisers can help them with implementation decisions.

If guaranteed sources of income cover essential expenses, participants then might consider following a systematic withdrawal program (SWP) to generate additional income, Bank of America Merrill suggests. A SWP regularly draws down a percentage of a portfolio’s assets to provide income and then rebalances the remaining assets to a target allocation.

The report notes that the same withdrawal rate will not be best for all ages and circumstances. For example, for a 65-year-old retiree, the sustainable spending rate is 4.38%. But a 75-year-old can safely spend at a 5.73% rate, and a 55-year-old—who might have many more years to live—should spend at a more modest 3.72% rate. In addition, men, because they have shorter life expectancies, can safely spend a bit more than women of the same age. Couples who are trying to plan over the lifetimes of both spouses should spend a bit less than singles. Retirement plan participants need help planning for this.

And, the portfolio participants will withdraw their income from in retirement needs to include some equity exposure, the report adds.

Finally, Bank of America Merrill says individuals need to plan ahead for long-term care needs. Its report says approximately 70% of individuals older than 65 will need some form of long-term care in their lifetimes, whether at home, at an assisted living facility or in a nursing home.

Plan sponsors might consider offering long-term care insurance as part of their voluntary benefits offerings. The retirement risks report says options for funding long-term care include self-funding and traditional long-term care insurance. In addition, recent innovations include hybrid life insurance with long-term care benefit riders and permanent life insurance with long-term care benefit riders.

Throughout its report, Bank of America Merrill Lynch suggests that advisers can help individuals with decisions to mitigate retirement risks. For their part, plan sponsors can offer participants access to financial advisers.

However, Allianz’s “2021 Retirement Risk Readiness Study” found that, among respondents who currently work with a financial professional, approximately two-thirds indicated they are not currently discussing their retirement risk concerns but would welcome that conversation. Plan sponsors can encourage participants to bring their concerns up with financial advisers, and financial advisers can include questions about participant worries in their planning meetings.

“It’s no secret that Americans are uncomfortable discussing financial topics, but it’s troubling that this reluctance extends to conversations with their own financial professionals,” says Kelly LaVigne, vice president of consumer insights, Allianz Life. “If they don’t feel comfortable addressing these concerns with the very people who are there to help plan for the future, it’s unlikely they’ll take any action to address the various risks that could jeopardize their retirement, and that needs to change.”

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