Administration July 6, 2011

Pension Plan Funding Ratios Dip in Q2

July 6, 2011 (PLANSPONSOR.com) - Legal & General Investment Management America (LGIMA) announced in its quarterly Pension Fiscal Fitness Monitor that U.S. corporate defined benefit plan funding ratios fell approximately 2% in the second quarter of 2011.
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The decrease in funded status was preceded by three positive quarters totaling over 17% in funding ratio gains.  LGIMA estimates the average funding ratio to be in the range of 85%-90% percent as of the end of the second quarter.

According to a news release, the Pension Fiscal Fitness Monitor showed the decrease in funding ratios came primarily from a decrease in liability discount rates.   Equity markets were volatile intra-quarter but ended the period flat on mixed economic news and political uncertainly.  At the same time, bond yields fell resulting in pension discount rates decreasing 10 basis points from 5.8% to 5.7%, increasing the present value of a typical pension liability profile by approximately 2%.

LGIMA’s Head of US Pension Solutions, Aaron Meder said in the announcement: “As a result of the uncertainty surrounding the global economic and political environment, funding ratios experienced a wild ride throughout the second quarter.  With that being said, ending up with only a 2% decrease in funding ratios is a modest victory for the plan sponsor community.  We estimate the average plan is still up around 15% over the past one-year period.

“Our clients continue to monitor target interest rate and funded status triggers and shift their asset allocation from return-seeking assets to liability hedging assets accordingly.  Looking forward, we expect our clients to continue down their respective de-risking glidepaths as funding ratios continue to improve.”

The Pension Fiscal Fitness Monitor assumes a typical liability profile and 60% equity/40% aggregate bond (“60/40”) investment strategy, and incorporates data from LGIMA research and Bank of America Merrill Lynch and Bloomberg data.
Administration July 6, 2011

Advisers Using Fewer Asset Managers

July 6, 2011 (PLANSPONSOR.com) - Cerulli's latest report, “Advisor Portfolio Construction Dynamics,” reveals that as advisers are building investment portfolios for their clients, they are using fewer asset managers in their practices.
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“Despite the proliferation of new products and providers, over the last several years, we have documented the extent to which advisers are using fewer asset managers. In 2008, just 37% of advisers reported regularly using five or fewer asset managers, but by 2011, this number increased to 57%,” said Scott Smith, head of Cerulli’s intermediary practice and lead author of the research, in a press release.   

The report notes there are several factors that have contributed to this ongoing concentration. For one, some advisers fear the risks of dealing with many providers because each new manager brings with it potential issues. For example, if a manager’s name ends up in a negative headline, it could cause concern for clients.    

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However, once an adviser believes in a manager’s people and process, they can be more willing to broaden their relationship, creating attractive asset-gathering opportunities for managers.   

Another factor contributing to advisers’ use of fewer asset managers is the growth of exchange-traded funds (ETFs). A single manager can provide coverage of several asset classes within an ETF structure. While use of passive products has not pushed aside traditional active products, advisers are willing to consider them to address specific needs or to serve as complements to active products.   

In the report, Cerulli includes a channelized view which identifies the advisers who are most concentrated with a primary provider.    

“The concentration of assets with a primary provider is highest in the registered investment adviser (RIA) and bank channels. RIAs report an average of just more than 40% of assets with their primary provider, reflecting the high use of passive products and the existence of single-manager devotion prevalent in the channel. In contrast, bank advisers are more likely to be implementing fund-of-funds solutions or operating in a commission environment where reducing sales charges by using a single manager is an ongoing concern,” said Smith.

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