MainStay Funds, a mutual fund complex in Parsippany, N.J. with 33 funds and $18 billion of assets under management, has created a new marketing position to promote its 11 institutional funds specifically to retirement plan consultants.
Mark Strazzeri has assumed this new position and is now director of institutional investments, based in Concord, Calif. Strazzeri has been with the fund complex for four years, the last two as national sales manager for the broker/dealer channel for the Western region.
MainStay previously marketed all of its investment products - its institutional funds, separate accounts and retail funds - to customers via traditional sales forces, said Strazzeri. It decided to actively promote its institutional funds to consultants who specialize in retirement plans because of the recent surge in retirement savings plans, Strazzeri said.
"As the consultant marketplace to retirement plans has grown by 50 percent in the past few years, we decided to expand our services to that marketplace," Strazzeri said.
MainStay, a subsidiary of New York Life, has been offering 11 institutional funds to retirement plans since 1991. These six equity funds and five fixed-income funds are meant to offer a broad range of investment choices to suit a range of time horizons, risk tolerances and investment goals, according to the company's web site.
New York Life developed these funds as bridge products between separately-managed accounts and retail funds, Strazzeri said. Essentially, institutional funds are professional money management alternatives for investors that do not have enough assets to qualify for privately-managed retirement accounts. MainStay offers these private accounts through two other New York Life money management subsidiaries - Mackay Shields and Monitor Capital. Minimums for these accounts vary according to the type of asset class managed, but are generally $20 million to $25 million. For instance, a growth equity fund at Mackay Shields must be at least $20 million. The minimum for an institutional fund at MainStay is only $250,000.
The real service a retirement consultant can provide his client is finding the perfect money management firm to best serve the clients' investment goals and risk tolerance, Strazzeri said.
"Obviously, there are hundreds of money managers out there, but smaller retirement plans are limited by money mangers' account-minimum requirements," he said. "What we are trying to do is round out the gaps with our institutional funds and we've never actively pointed out the benefits of these products to consultants before."
"Retirement plan consultants have a really difficult job. We have a lot of respect for them and are trying to fill the void between large retirement plans and smaller plans with our institutional funds."
MainStay is not alone in having, until now, ignored this market, Strazzeri said. Very few fund companies promote their institutional funds through consultants to smaller retirement plans because they are more interested in establishing their separate account business among larger retirement plans, Strazzeri said.
However, there are billions of dollars being invested in mutual funds for retirement that could qualify for institutional funds, Strazzeri said.
The principal reason a retirement plan would want to invest in an institutional fund rather than a retail fund is the tremendous breaks on fees and sales charges that can be obtained, Strazzeri said. At MainStay, the institutional funds charge no upfront sales fees. Further, MainStay's institutional growth fund, for example, charges a management fee of only 93 basis points. By comparison, class A shares of its retail growth fund have a management fee of 1.09 percent. This is in addition to an initial load fee of one percent charged on accounts of $1 million or less.
Thus, a retirement plan can save 1.16 percent on fees by investing in a MainStay institutional growth fund as opposed to a MainStay retail growth fund, Strazzeri said.
"We haven't marketed these savings highlights to consultants in an active way, and that is now my job," Strazzeri said.
Strazzeri also plans to attract business by promoting bundled retirement plans. MainStay can provide administration, bookkeeping and custody services from another New York Life subsidiary, New York Life Benefit Services. This allows MainStay customers to obtain all the elements of a retirement plan from one company - investment options, administration and record-keeping, annual IRS filings and compliance reviews.
Strazzeri said he is initially working alone and will determine over the next few months how many other staff members he will need to serve the consulting community.