Trends in Investment Management and ERISA Plan Fiduciaries

The last several months of 2017 have seen a number of changes to the market, with a rise in talk about robo-technology and the ever-forthcoming Fiduciary Rule. Changes to the regulatory environment top the list of many commentators as a key trend to watch. Which other trends in the market affect Plan Advisors the most? We analyzed several reports of trends in the industry, as well as the CFA Institute’s report on "Future State of the Investment Profession" and noted the following.

First, the trends involving technology, data and efficiency seem to continue to march forward. While some commentators link the technology trend to lowering costs or gaining more information about investors, for plan advisors it seems that new technology falls more toward ensuring employees can make the best use of dashboards and predictive modeling. As we wrote in a previous blog post, making the most of this trend requires knowing how tech savvy the employees of your clients are.  The role of big data is also crucial for plan administrators. While data cross referencing is more important on the individual investor side, understanding the need to monitor, store and access client data in a way that meets regulations is an emerging and important topic. That is, handling the big data may be a more vital trend for plan administrators than crunching the numbers within the big data.

Second, the trend towards risk management or investment monitoring has increased in discussion and importance since we first discussed it in an article in May of 2017. There, we noted that your client’s increasing pressure within its organization to shift to enterprise-wide risk management may ripple over into its view on management of the plan. Understanding both trends in investment monitoring as well as enterprise risk management can help meet your client’s needs in a language (and possibly timeframe) they will appreciate. The key to the trend of both risk management and investment monitoring is to ensure a sustainability plan for your client, both in terms of costs and returns, but also long term administrative management.

Third, wealth management and lower fees and costs may cause plan administrators to have to think innovatively about service delivery. Some in the market note that downward pressure on fees is now “relentless.”  Some of this downward trend is occurring because the public does not view account managers as providing provable value. This trend could affect plan managers if their clients see account managers and plan managers through a similar lens. Distinguishing the services provided, both financial advisory and administrative, if combined, could help steer clients away from this trend.

Fourth, another trend worth noting is the use of relationship managers or management for institutional account managers.  The need for presentation skill as well as clear communication between client and manager is evolving to be more necessary given the downward pressure on fees. This may also dovetail into a trend towards moving into passive management, rather than active management. For a plan advisor, understanding this split can be crucial. Having more passively managed funds available for employees may help a client feel that their employees are receiving a cost-savvy experience.  This trend further dovetails with the need for investment monitoring; that is, automate what can be automated, and monitor, assess and discuss what raise issues of risk.

Fifth, defined benefit plans and their shortcomings came to the forefront last winter and drove questions about the efficacy of the 401k and as an investment model. That trend seems to be even more on the rise. Commentators are noting the difference in performance between the industry and the performance of pension plans. The key here is that as the public continues to discuss the poor performance of defined benefit plans and other pension plans, they may conflate that with all work-related retirement plans. Being prepared with guidance on how a 401k still is the best investment model for most Americans may be helpful. This may be one way to differentiate your firm or your work from others in the market, especially those who may be tempted to compete by succumbing to the pressure on fees.

Sixth, regulatory trends may move advisors and Plan Administrators towards a more comprehensive set of ethics and agreement on fiduciary status This means advisors will become more and more focused on helping a client to identify their needs, so that the advisor can show that they have worked to meet those needs ethically.

Seventh, socially responsible investing continues to motivate and move Millenials. This too will require more information from clients about their goals, needs, and key social issues, as well as more information about performance by the funds and companies those Millenials want to invest in.