Retirement benefits

Benefits consulting firms Mercer and Callan Associates are creating a mega investment consulting shop, as the two have announced plans to merge their operations.

MIAMI - With the average equity mutual fund portfolio down more than 38% in 2008, money market mutual funds are quickly becoming one of the only safe havens for risk-averse investors. Money market fund assets recently topped $4 trillion for the first time, making money funds the single largest mutual fund group, according to the Investment Company Institute.

BOSTON - For decades, annuities were shunned by money managers for their high cost and lack of liquidity.

BOSTON - Like gambling addicts who just need one more big win before they cash out, millions of Baby Boomers on the verge of retirement took extremely risky bets with their life savings, hoping to score that big jackpot that would make up for all their past mistakes.

Sens. Tom Harkin (D-Iowa) and Herb Kohl (D-Wis.) have reintroduced legislation, the Harkin/Kohl Defined Contribution Fee Disclosure Act of 2009, that would require 401(k) plan providers to clearly disclose all of the fees they charge. The senators cite AARP research that shows if a 35-year-old invested $20,000 in a 401(k) plan over 30 years that yielded 6.5% a year and cost 0.5% in fees, their remaining balance would be $132,287, but if the fees were 1.5%, they would have only $99,679, or 25% less.

The economic turmoil has prompted smaller employers who previously hadn’t considered setting up a 401(k) plan to do so in light of the beaten down values, The Wall Street Journal reports.

Defined contribution plans have been hammered by dropping equity markets, and this chain of losses has caused a ripple effect throughout the fund management industry.

John Hancock Retirement Plan Services has expanded its sales team by 18, hiring eight regional vice presidents and 10 professionals to man its new internal sales desk. This is a 15% increase in John Hancock’s team supporting advisers selling 401(k)s.

The Department of Labor’s new rule that would permit advisers affiliated with fund companies administering a 401(k) plan to give advice, is drawing fire—so much so that industry observers don’t expect it to last.The rule would permit an adviser to give advice if they either use a computer model that suggests appropriate investments given a person’s age and risk tolerance, or a flat-fee structure whereby they would not stand to benefit more for suggesting one fund over another.In passing the new rule, the DOL said, “Access to professional investment advice is particularly important now for workers as they manage their 401(k) plans and IRAs in changing and volatile financial markets.”One critic, however, is Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, who recently testified that the law is flawed because “it will allow financial services firms to offer potentially conflicted investment advise on workers’ retirement accounts.”Financial planner Chad Griffeth agreed, telling Dow Jones, “The rule does not prevent potential for conflicted advice.“The controversy exists in that the person delivering the advice must adhere to specific fiduciary criteria, but their affiliated firm, whether that’s a broker/dealer, mutual fund company, insurance company or bank, does not,” Griffeth said. “[This] opens the door on the part of brokerage firms and mutual fund firms at the sake of participants, whom I fear wouldn’t know what questions they should ask to ferret out conflicted advice.”

Left to their own devices, 401(k) investors either underweight or overweight their risk tolerance, ending up with a portfolio either loaded up or too light on equities.

Judging from the actions of the 11 million participants Fidelity Investment serves through their 401(k)s, investors remain faithful about retirement savings.

Rather than fixate on contributions and current 401(k) balance, a new website, ReviewMy401k.com, gauges investors’ risk tolerance, asks them for a complete list of the choices available in their 401(k) plan and how they are currently invested, and, from that, suggests a portfolio mix of the best funds available to them based upon their needs. It also provides quarterly reviews and updates of the investment mix.

In light of the recent market downturn and the difficult position that has left millions of near-retirees, Charles Schwab has launched a new suite of advice and tools specifically geared to investors within 10 years of retirement, called Real Life Retirement Services. Built as a type of social network, the accompanying website gives investors a place to ask questions and share their own experiences, including a survey that shows them how their retirement expectations compare with their peers.

The Department of Labor has ruled that financial advisers affiliated with the mutual fund companies administering 401(k) plans can offer advice. However, they must reveal the source of their fees, which will remain constant, regardless of their recommendations. If they use computer models, they must also disclose that.

The events that occurred in the financial services industry over the past year were once thought inconceivable. At this point, regulators are chomping at the bit to reverse how Wall Street does business, and investors are downright spooked. The editors of SourceMedia's business publications offer their views on how these dramatic shifts on Wall Street and in corporate America will impact businesses and investors this year.

A small, but growing number of 401(k) investors, burned by the steep negative returns in 2008, are moving assets into such capital preservation funds as stable-value and money market funds, Mercer Consulting reported.

NEW YORK - Millions of aging Baby Boomers heeded the reassuring words of their financial advisers and remained heavily invested in equities throughout 2008, only to watch in shocked disbelief as 40% of their life savings disappeared.

Sponsors of 401(k) plans worry that investors will either invest too heavily in risky equities, or too conservatively in money market funds, but in 2007, at least, target-date funds allocated investors’ money wisely across the board, Vanguard found.

Despite the rough economy in 2008, U.S. households continued to place their trust and their investments with mutual funds, according to a study by the Investment Company Institute."2008 marked the fifth consecutive year of growth in mutual fund-owning households," said Sarah Holden, ICI Senior Director of Retirement and Investor Research. "The survey finds about 4 million investors were added to mutual fund ownership ranks in 2008-up to 92 million from 88.2 million in 2007."Shareholder views of mutual funds continued to track stock market performance, with favorability declining from 77% in 2007 to 73% in 2008, and "more seasoned" investors tended to give mutual funds higher ratings than younger investors did.

It started badly on the tail end of the subprime crisis that began in the fall of 2007 and managed to get worse when catastrophic third-quarter results poured in, sending many of the biggest financial services firms straight down the crapper.The question is, where do we go from here?Analysts say the next year is going to be tough for advisers."What's an adviser to do?" said Kenneth Kehrer, the director of consulting at Kehrer-Limra in Princeton, N.J. "How can he encourage clients not to cash out their holdings when all the adviser's advice is proving wrong?"Advisers "are still sticking to theories, the experience and wisdom of the profession, while clients are losing confidence in them," Kehrer said. "We're all waiting for a comeback, but in the meantime financial advisers just look foolish. The tenets of diversification and rebalancing are shaken."It's small consolation that this is a crisis of confidence for everyone. No one really knows what's going to happen from one minute to the next, and no one knows when the crisis will end. The current consensus is pointing to anywhere from the end of the first quarter to early 2010.And at the same time advisers are trying to calm clients, their business may be shifting as the biggest banks digest their acquisitions and smaller banks try to accommodate a growing client base.One thing for advisers to remember is that the needs of clients and prospects haven't changed just because the market has — they still need to retire and put their kids through college. Sure, the conversations are more difficult now that everyone's problems are magnified, but financial consultants must man up, said Heywood Sloane, managing director of the Bank Insurance and Securities Association. "Advisers can either do these people a service or they can run and hide," he said. "Those advisers who choose to help will be remembered when all this is over."In the meantime, advisers can add value to client conversations by explaining the problem as it evolves. For example, Sloane said, market volatility unseen since the Great Depression is driven partly by the fact that no one knows what anything is supposed to cost at the moment, and so every purchase is an emotional response that makes the markets unpredictable.Sloane said housing will eventually lead the country out of this recession. Current and anticipated foreclosures are forcing housing prices down, and eventually the cost of a house will get low enough that a prospective homeowner will buy."Until we get a net decline in population, there will always be an increase in demand for resources, so the housing market will stabilize at some point," Sloane said. "You can help clients understand their options by helping them gain knowledge."Chip Roame, a managing principal of Tiburon Advisors in Tiburon, Calif., said banks "will definitely hire more financial advisers."But advisers who were planning their own retirements have to drink the same poison as their clients. Retirement just isn't an option right now. Even independent advisers who sold their books to banks in order to retire and live off the proceeds are suffering. Now that their assets are reduced and clients might be a flight risk, their books hold less value.