401k Industry Trends

401k Industry Trends - 401(k Industry Trends Setting new...

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Unformatted text preview: 401(k) Industry Trends Setting new standards in the delivery of S TRATEGIC B USINESS I NTELLIGENCE A Presentation by: Joshua Dietch Managing Director, Chatham Partners 2 Discussion Topics ¡ The leaky bucket ¡ The role of the intermediary ¡ The elephant in the room - Fees and fee disclosure ¡ Technology, Education, and PPA ¡ Investment-only sales in the age of PPA and open-architecture ¡ Why sales process management matters ¡ Final thoughts The leaky bucket 4 Growth of DC/401(k) assets ¡ PPA breathes new life into DC marketplace – Increased participation/contribution rates through auto-enrollment – Permanency of EGTRRA provisions such as catch-up contributions ¡ Resultant in increased net flows into DC plans for the foreseeable future $0 $1 $2 $3 $4 $5 $6 $7 401(k) 403(b) / 457 Other DC $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 2006 2007 2008 2009 2010 2011 2012 without PPA with PPA DC Asset Growth DC Asset Net Flows $T $BN 2000 2006 2012 Sources: DOL, Federal Reserve, NAGDCA, Morgan Stanley Research, Chatham Partners estimates Estimated Estimated 5 Over time, who stands to gain? ¡ PPA gives a boost to the DC market, but net growth is mitigated by rising distributions ¡ Majority of assets from DC distributions find their way into the IRA market ¡ Unfavorable demographics and PPA accelerate the deterioration of DB market flows ($98.4) ($55.3) ($129.1) $212.1 $140.4 $121.5 $11.5 $10.9 $32.7-$150-$100-$50 $0 $50 $100 $150 $200 $250 $300 2004 2006 2012 Private Sector DB IRA Private Sector DC Projected Net Flows ($BN) Source: Morgan Stanley Research, Federal Reserve, DOL, Chatham Partners estimates $288 $277 $487 $454 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2006 2007 2008 2009 2010 2011 2012 Contributions Distributions Estimated DC Market Flows ($BN) 6 Still, DC and 401(k) represent a leaky bucket ¡ While PPA provides a shot in the arm for the DC market, the overall growth trend still favors IRAs – Longer-term implications of baby boomer retirement remains – DC distributions continue to keep pace with increased flows as assets increasing leak into the retail marketplace 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 2010 2015 2020 2025 2030 2035 2040 50% 60% 70% 80% 90% 100% 110% Distributions / Contributions Rollover / Distributions Boomers in Retirement 2010-2040 2000 2006 2012 E Source: US Census Bureau Sources: Morgan Stanley Research, Cerulli Associates, Chatham estimates DC Outflows and IRA Rollovers The role of the intermediary 8 Current use of intermediaries ¡ Recent Chatham study suggests – DC market is heavily intermediated – No one business model dominates the advisory business 21% 20% 20% 30% 53% 49% 60% 41% 15% 15% 14% 16% 5% 6% 4% 7% 6% 10% 5% 2% 1% Total <$100 MM $100 MM - $1 BN >$1 BN Without Investment Consultant With Investment Consultant Outsourced to Third-Party Inv. Mgr. Internally Manage via Inv. Mgmt. Co....
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This note was uploaded on 08/22/2011 for the course EEE 230 taught by Professor Subramanian during the Spring '07 term at Berkeley.

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401k Industry Trends - 401(k Industry Trends Setting new...

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