From the October 2006 issue of Investment Advisor • Subscribe!

October 1, 2006

UMAs & CIFs: New 401(k) Solutions

A Retirement Planner Profile

John Newman's group at Denver-based Fiserv ISS is poised to take advantage of the new trend toward outside management of asset allocation in retirement plans--and away from do-it-yourself 401(k) investing--that started to take hold in 2004. Newman is taking advantage of the new landscape by helping to develop solutions for advisors to 401(k) plans whose clients are actively seeking help with their asset allocation choices by offering unitized managed accounts (UMAs) tailored for advisors or broker/dealers with investment discretion, and collective investment funds (CIFs) that invest in multiple mutual funds.

Unitized managed accounts shouldn't be confused with unified managed accounts, also sometimes called unified managed households. Unitized means that the portfolio includes stocks, mutual funds, and ETFs, but the investor owns units of the collective asset, Newman explains. Unified managed accounts combine multiple investments into one solution--like ETFs, REITs, and so on--and allow investors to access investments they wouldn't normally be able to.

Newman, 43, who has been at Fiserv since 1985 when the company was known as First Trust Corp., is VP of the Institutional Retirement Plan (IRP) Services group, one of the four Fiserv ISS business areas. IRP Services provides back office, electronic trading support, and personal service for balance-forward and daily valuation retirement plans. Fiserv ISS provides products and services through Fiserv Affinity Inc. and Fiserv Trust Co.

Having recognized the trend away from do-it-yourself investing, Fiserv launched a portfolio solutions product for 401(k) advisors in January 2005 featuring the UMAs, and then began offering CIFs this year. The UMAs and CIFs meet investors' needs by allowing registered investment advisors to help an employer select a number of mutual funds for the firm to choose from, Newman explains. An RIA creates several asset allocation portfolios and communicates them to plan participants who invest directly into an asset allocation model managed for them, from conservative to aggressive.

The RIA does all the management of assets and Fiserv ISS provides the infrastructure, custody, accounting for the portfolios, and creates a single net asset value of the UMA each night--a price per share, which allows trading on a same-day basis for plan participants, Newman says. "Our firm is on the leading edge of this trend."

But, he adds, "the way that we have extended that--in addition to offering the UMA--we also offer and create CIFs with a number of registered advisory firms providing asset allocation portfolios." CIFs are bank-maintained collective investment funds that invest in multiple mutual funds with Fiserv's trust company serving as a trustee.

Fiserv ISS has a relationship with eight to 10 registered advisory firms who have helped the firm create the CIF portfolios, and Newman expects this area to grow. In July, Fiserv ISS teamed up with Presidium Retirement Advisers Inc. to offer such funds. Each of Fiserv ISS's CIF portfolios is based on an asset allocation strategy from an outside registered advisory firm. The firm handles $500 million in assets in UMAs and a fifth of that in CIFs now. Marketplace need for CIFs became apparent to Fiserv ISS after quickly growing its UMA business. UMA accounts were not as cost-effective for smaller plans that needed solutions to be created on a single-plan basis. The CIF platform allows any size plan to get the same economy of scale, Newman says.

"Based on our experience so far, when advisors do offer UMAs or a CIF to a plan, we are seeing, on average, about 70% of the total plan assets going into these solutions," Newman notes. This, he says, "speaks to the need that the majority of participants do not feel comfortable allocating themselves and want to rely on an advisor."

IRP Services has about 75 TPA/ record-keeping firms as clients, representing just over $8 billion in total assets with 1,900 individual qualified plans. Advisors usually own the plan sponsor relationship so most of the business that comes to IRP Services is through TPAs, Newman says. "We work with 50 to 75 401(k) advisors who are managing much of that business."

Newman expects that under the new Pension Protection Act, Fiserv and others will see more plans using asset allocation plans as a default investment option whether that be a lifestyle fund or a target-date fund.

Elizabeth D. Festa is a freelance business writer based in Washington, D.C. She can be reached by e-mail at elizabeth.d.festa@comcast.net.

Reprints Discuss this story
This is where the comments go.