Investing September 28, 2018

Millennials Add More to ETFs than Other Generations

A Charles Schwab self-directed brokerage account (SDBA) report found that Gen Xers and Baby Boomers allocated less to their exchange-traded funds (ETFs) than the younger age group. 

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Despite having the lowest participating percentage (11%) for self-directed brokerage accounts (SDBAs), a Charles Schwab report found Millennials allocated more (23%) to their exchange-traded funds (ETFs) than any other age group for the second quarter of 2018.

According to the Charles Schwab SDBA Indicators Report, 19% of Generation X and 16% of Baby Boomers added more to their ETFs. Additionally, 16% of Millennials saved more cash than 13% of Gen Xers and Baby Boomers, respectively.

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Millennials didn’t reign in every category, however. The Charles Schwab report discovered Baby Boomers hold 3% of their portfolios in fixed income, with Gen Xers coming in second (1%) and Millennials at 0.5%. Baby Boomers allocated an average of 39% of their portfolios to mutual funds (which defended their title as the largest holding in all accounts) followed by Gen Xers (36%) and Millennials (32%). Equities came in as runner-up in leading holdings, as 30% of Gen X portfolios were allocated to them, 29% of Baby Boomers and 27% Millennials.

Top equity holdings ranging across all generations included Apple, Inc.; Amazon.com, Inc.; Facebook, Inc.; Berkshire Hathaway, Inc.; and Netflix, Inc.; among others. Concerning ETFs, U.S. Broad Funds were widely used, as the report found the Schwab U.S. Broad Market ETF; SPDR S&P 500 ETF; and Vanguard Total Stock Fund; average in the top five ETF holdings.

Additional findings included popularity in mobile trading, with Millennials and Gen Xers more likely to utilize the platform (19% each) than Baby Boomers (14%), and top balances, which went to Baby Boomers at an average of $365,561, then Gen X at $194,534, and Millennials at $61,916.

For the second quarter of 2018, average SDBA balances within all age groups was $265,902, a 1.5% increase from the last quarter, and a large 23% from 2017’s second quarter.

More information about the report can be found here.

Compliance September 27, 2018

Annuity Selection Safe Harbor Tacked Onto Retirement Bill

The House Ways and Means Committee Chairman submitted an amendment to the Family Savings Act.

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House Ways and Means Committee chairman Kevin Brady, R-Texas, submitted an amendment to the Family Savings Act—legislation included in a package of bills as part of Tax Reform 2.0.

The amendment is a fiduciary rule safe harbor for the selection of a lifetime income provider for retirement plans.

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The amendment says a fiduciary should engage “in an objective, thorough, and analytical search for the purpose of identifying insurers from which to purchase such contracts, considering the financial capability of the insurer to satisfy its obligations under the guaranteed retirement income contract as well as the cost (including fees and commissions) of the guaranteed retirement income contract offered by the insurer in relation to the benefits and product features of the contract and administrative services to be provided under the contract.

Under the bill amendment, plan fiduciaries would be required to obtain written representations from guaranteed income providers that, among other things, they comply with state laws and regulations regarding insurers.

The amendment says there is no requirement to select the lowest-cost provider or contract. It also lays out requirements for period reviews of providers and products.

“A fiduciary which satisfies the requirements of this subsection shall not be liable following the distribution of any benefit, or the investment by or on behalf of a participant or beneficiary pursuant to the selected guaranteed retirement income contract, for any losses that may result to the participant or beneficiary due to an insurer’s inability to satisfy its financial obligations under the terms of such contract,” the amendment says.

A Government Accountability Office (GAO) report pointed out that the Department of Labor (DOL) has prescribed steps plan sponsors can take to satisfy their fiduciary duties when selecting an annuity provider for a 401(k) plan. However, according to industry stakeholders GAO interviewed, those steps are not often used because they include assessing “sufficient” information to “appropriately” conclude that the annuity provider will be financially able to pay future claims, without providing clear definitions for those terms.

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