In the past, we’ve noted several investment monitoring trends, including those involving data processing as well as protecting the new data collected. This now includes how advisors use AI to collect and manage data, both about fund performance as well as market trends.
Recent research released in June of 2024 by MFS Investment Management may reflect that the scope of risk is shifting.[1] These concerns include administrative and regulatory changes as well as continuing concerns about retirement readiness of plan participants. Concerns about volatility are driving retirement plan fiduciaries to revaluate their investment lineups. They also named increasing worries about litigation risks shifting and a change in administrative burdens- towards MORE regulation. “Nearly one-fifth of sponsors (18%) are considering investment lineup changes to their fixed-income investments in the next 12 to 18 months, 18% have added options, 7% replaced managers and 7% reduced or removed options.”[2]
These concerns about managing volatility and adjusting for potential litigation risks may have financial advisors considering their current offerings of investment monitoring. “Investment monitoring relies on accurate, timely, and complete data to assess portfolio performance and risk.”[3] Like its sister, risk management, investment monitoring must also consider risk trends.
We’ve discussed the relationship between risk management and investment monitoring in past articles. There we’ve noted that corporate compliance and risk management evaluates internal policies, externally imposed regulations, and reporting requirements, and synthesizes both with an eye towards performance and efficiency. The same holds for Investment Monitoring and Oversight. As corporations invest heavily in compliance functions and departments, so have some banks and financial services companies.
It stands to reason that if your client’s business culture is moving from a traditional risk management model to an enterprise risk management model, they are more aware of the benefits of oversight and monitoring. Clients who work for companies moving towards enterprise risk management may be more likely to seek out investment monitors with a broader range of services, having seen the benefits of enterprise risk management at their places of work.
That means if you aren’t aware of how investment monitoring can benefit your client and change the kind of information you communicate to your client, that client may tune you out and tune into someone else who is focused on oversight and monitoring.”
In the past, we’ve noted several investment monitoring trends, including those involving data processing as well as protecting the new data collected. This now includes how advisors use AI to collect and manage data, both about fund performance as well as market trends.[4] One main area that continues to bedevil investment advisors concerns fees. For those involved in administering benefit plans, recordkeeping fees are now the subject of litigation that requires close monitoring. And fees for managing transactions and funds continue to draw the eye of clients and regulators.[5] Other new challenges to investment monitoring include “the increasing variety of investment vehicles and strategies can complicate investment monitoring, as different investments may require unique monitoring approaches and metrics.”[6]
The volatility plan sponsors noted in the recent MFS Investment Management survey is more than merely market fluctuations. It includes other sources of risk as well. Yet, as experts note, data on climate risks is yet to be reliable.[7]
Financial advisors who work with retirement plans or large, complex estates may want to consider the range of new risk management tools. Corporate risk management tools are now enterprise-wide and include options from PwC.[8] Their product maps regulatory changes and alerts clients to compliance risks. Other companies offer comparable products, including Moody’s[9] and Blackrock.[10]
[1] https://www.plansponsor.com/mfs-sponsors-expect-to-reevaluate-investment-lineups
[2] https://www.plansponsor.com/mfs-sponsors-expect-to-reevaluate-investment-lineups
[5] https://www.bcgbenefits.com/blog/trends-in-investment-management
[7] https://rpc.cfainstitute.org/en/research/reports/2024/climate-related-data-in-the-investment-process
[8] https://riskproducts.pwc.com/products/risk-link
[9] https://www.moodys.com/web/en/us/who-we-serve/buy-side.html
[10] https://www.blackrock.com/aladdin/offerings/aladdin-enterprise
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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