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Thinking about expanding your investment funds lineup? |
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In today’s commoditized world of retirement services, many providers have found it difficult to differentiate themselves purely on the services they provide. As such, several retirement providers have ventured beyond the traditional products and services for ways to differentiate themselves and many have focused on expanding alternative investment options. But will this do the trick? Are these options really the way for providers to pull ahead of the pack?
 The added options that are generally offered are Lifestyle Funds, Target Date Funds, Income Builder/Manager Options, Exchange Traded Funds, and Real Estate Funds. Spectrem’s Perspective Participant Usage and Demand for Alternative Investment Funds shows that despite some inroads made into educating participants about these options, interest remains low. However, these may still be of interest to sponsors as a means of offering participant’s an expanded palate. Even if plan participants don’t use them, it would allow the sponsor to point to a wide array of choices as a benefit. But this may not be enough of a reason to add any of these funds to your investment lineup if you don’t offer them already. Lifestyle Funds, one of the most popular, often referred to as a “fund of funds”, are still relatively unknown to participants. Only 6% of survey participant’s reported they were familiar with this option. It is surprising that there is not more awareness of this type of fund as 41% of plans offer them. Findings were similar with some of the other funds offered, like the Target Date Fund, which is a newer offering in retirement plans. Only 6% of respondents said they were very familiar with them; a similar finding to the results for the Lifestyle Fund. The Lifestyle Fund, one of the more popular with providers and the most often offered, has only 12% interest from participants who do not currently have it offered in their plans. It has 6% interest from participants when it was offered in their plan. These weak numbers seem to point to disinterest whether or not participants are educated about the fund through enrollment materials. Indeed, the type of fund that participants reported being the most familiar with, the Real Estate Fund, had a 15% familiarity, whether or not it was offered in their plan. These numbers are not very compelling. Interest always goes up with education, but would it be enough to warrant increasing the offers of the plan to include this or any other alternative investment option. While plan providers jockey for position to capture the 10% of plan sponsors who switch providers in any given year, adding additional investment funds may seem like a win-win-win for providers, sponsors, and participants. The fact is that regardless of education, participants are not generally interested in these funds. So while a broader range of funds may attract sponsors who are then able to point to a robust array of choices for their participants as a benefit, participants aren’t taking advantage of them.  Focusing energy on things that make a marked difference to participants like an excellent cutting-edge online presence, online tools or a personalized monthly statement will make more of an impact than adding funds of little interest to participants.
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High Net Worth Advisor Insights Newsletter April 2008
