Defined contribution plan consultants are concerned about rising rates, a low return environment and high volatility over the next three to five years, according to a survey by PIMCO.
More than 70 percent of consultants surveyed said they are concerned or very concerned about each of these topics.
Nearly all consultants surveyed view active management as important or very important in global asset-allocation strategies, such as target-date funds. They also agree that it is somewhat or very important to actively manage all asset classes, with the weakest support given to large cap U.S. equities and TIPS.
Consultants were concerned or very concerned about these issues related to passive investment management:
- Perception of low cost as a litigation safeguard
- Belief that passive investing requires less oversight
- View that low tracking error means “risk free”
- Inability to adjust to market conditions and risk pricing
- Reliance on index volatility as sole risk management tool
When evaluating active managers, consultants believe the following criteria are important or very important: strength of investment process, consistency of excess returns, resource depth, manager tenure and manager alpha.
When it comes to retirement income, 59 percent of consultants said that some or most of their plan sponsor clients prefer to retain retiree assets. Twenty-one percent said that some or a majority actively seek to retain these assets and only two firms, or 4 percent, reported that the majority of their clients prefer that retirees move out of their plan, according to PIMCO.
Eighty-four percent of respondents said that it was important or very important to include retirement income modeling/education in the distribution tier. Sixty-nine percent felt the same about one-on-one retirement counseling; 68 percent thought diversified fixed income needed to be included; 63 percent felt at-retirement target date needed to be included and 60 percent felt systematic withdrawal/installment payments needed to be an option.
More than half of consultants surveyed felt that the following retirement income strategies would have some or significant growth over the next two years: retirement income modeling/education; one-on-one retirement counseling; managed account for income; and deferred income annuities.
PIMCO is a global asset management company. It surveyed 49 consulting firms that serve more than 7,800 clients with aggregate defined contribution plan assets in excess of $2.8 trillion for its report.