New may not always be better, but it is what the retirement industry needs right now.
That's the world according to Robert Reynolds. The Putnam Investments president and chief executive officer appealed to industry insiders at a conference in Florida Tuesday to break down the barriers of conventional wisdom and usher in important innovations to the marketplace.
Following the market crash of 2008, Reynolds stressed the importance of a new, modern take on product, portfolio construction, risk management and diversification to address the priorities and challenges faced by investors today. His thoughts reflect those of Putnams recently launched awareness building campaign, "New Ways of Thinking," which emphasizes the importance of financial advisers and investors to anticipate the evolution of and capitalize on new opportunities in the investment markets.
We find ourselves moving ever-so-tentatively into a financial future with seemingly only one certainty: it will likely be very different than the investment world in which we all grew up, Reynolds explained. This suggests that conventional wisdom shaped by decades of high-return investing first in equities from 1982 to 2000, then in fixed-income markets over most of this young century needs to be re-examined, revised or even scrapped.
Reynolds noted lower returns and increased volatility of core equity and bond markets over the past decade as the biggest source of investor angst. In an environment of constrained fixed income returns and geopolitically-driven anxiety, asset managers and advisers can offer value to clients in several ways, he said.
These methods include: seeking value beyond mainstream indices, looking to dividend stocks as a key source for income, adopting strategies such as those that invest in low-beta stocks that curb volatility and deliver more reliable returns, incorporating in portfolios absolute return strategies alongside traditional benchmark-driven investments, assessing the real "balance" in investment portfolios via a stringent risk-allocation perspective, and applying Sharpe-ratio (or high efficiency) metrics to judge securities and strategies.
Amid higher volatility, rising tax rates, political uncertainties and near-zero interest rates, Abraham Lincolns great adage, 'We need to think anew and act anew,' is more relevant than ever," Reynolds said. "Investors, advisors, and asset management providers all should consider a new blend of traditional and alternative strategies to help reach critical financial goals in this new investment era.
Reynolds also urged industry insiders to proactively address three key retirement policy changes that could dramatically improve retirement readiness in the U.S. Like many of his colleagues, Reynolds pushed the benefits of "full-auto" practices including auto-enrollment and reenrollment, auto escalation and QDIAs recommending that providers make such practices standard or even mandatory for every defined contribution plan in the U.S. He also supported the extension of workplace savings coverage to all working Americans, so that everyone who pays Social Security taxes also has the option to save for their own retirement. FInally, he emphasized that the industry average 7% participant savings rate should be raised to at least 10% to ensure sufficient savings for retirement.
Boston-based Putnam managed $133 billion in assets as of the end of January 2013.
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