Registered investment advisors are responding to cost-conscious plan sponsors' needs by broadening investment options, and increasingly incorporating passively managed mutual funds.
The results from a Cogent Reports study, which surveyed 437 advisors with a minimum of $5 million in assets under management, show significant changes in how RIAs are designing plan menus. Two-thirds of the advisors surveyed are now including passively managed funds, compared to 54 percent last year.
They are also using more fund managers. On average, 5.7 investment managers are now being deployed, compared to an average of 3.9 last year.
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Vanguard has been the greatest beneficiary of the movement to passive management. Known for its low cost index funds, the Valley Forge, Penn.-based fund company has been recently added by 19 percent of the RIAs surveyed by Cogent.
"The surge for Vanguard is a clear result of the increasing prevalence and preference among DC advisors for recommending passive investments within DC plans," said Linda York, a vice president with Market Strategies, the research consultant commissioned by Cogent to produce the study.
In spite of the surge, American Funds, which are all actively managed, were recently recommended by 22 percent of the advisors surveyed, the most of all major fund families. American's reputation for delivering low-cost, actively managed options is helping to insulate the fund-family from the passive trend.
Pimco funds, reeling from several years of lack-luster performance and the recent departure of co-founder Bill Gross, were recently dropped by 10 percent of the advisors surveyed, offset somewhat by the 9 percent that recently chose to add the funds.
A continuing movement to open-architecture platforms, which give sponsors greater flexibility in building non-propriety and proprietary options into menus, are facilitating a broader selection of options, and paving the way for more competitively priced options, be them passively or actively managed.
"This is resulting in the growing use of indexed funds and heightened competition for actively-managed strategies and target date solutions as advisors pursue the best-in-class providers in each category," added York.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
