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United States Ranks 14th in Retirement Security

The United States ranks 14^th for retirement security, according to the 2016 Global Retirement Index, released by Natixis Global Asset Management. The index examines key factors that drive retirement security and provides a comparison tool for best practices in retirement policy across 43 countries.

Among the leading countries for retirement security identified by the Index, Northern Europe dominates the top 10, including Norway at No. 1, followed by Switzerland, Iceland, Sweden, Germany, The Netherlands and Austria. They are joined by New Zealand (No. 4), Australia (No. 6) and Canada (No. 10).

“Retirement used to be simple: Individuals worked and saved, employers provided a pension, and payroll taxes funded government benefits, resulting in a predictable income stream for a financially secure retirement,” said John Hailer, CEO of Natixis Global Asset Management in the Americas and Asia. “Demographics and economics have rendered the old model unsustainable, but the leaders in our index are finding innovative ways to adapt to the new reality and provide a blueprint for the rest of the world.”

The Natixis Global Retirement Index, introduced in 2013, creates an overall retirement security score based on four factors that affect the lives of retirees. Finances in retirement are an important component, but three other sub-indices that gauge material wellbeing, health, and quality of life are included to provide a more holistic view. With this year’s edition, Natixis has focused on a smaller number of countries than in the past, mainly developed economies where retirement is a pressing social and economic issue.

Despite many positives, warning signs clear for the U.S.

The U.S. ranking benefits from high per capita income, the stability of its financial institutions and its low rate of inflation, according to index data compiled by Natixis. In addition, the nation’s unemployment rate has moved lower, continuing a long-term trend.

In contrast to these positive factors, the U.S. also has one of the highest levels of income inequality among developed nations, putting the goal of retirement savings beyond the reach of millions. The U.S. also has a growing ratio of retirees to employment-age adults, which means there are fewer workers to support programs such as Social Security and Medicare, putting increasing pressure on those government resources over time. That trend, combined with the broader shift from defined-benefit to defined-contribution employer retirement plans, is transferring the burden of retirement financing to individuals.

Americans recognize the shift in funding responsibility

American investors are acutely aware of increasing the need for individuals to fund a greater share of retirement. In a survey of investors conducted by the firm earlier this year, 75% said this responsibility increasingly lands on their shoulders.

However, many Americans may be underestimating how much money they need to save in order to retire comfortably. Investors estimate they will need to replace only 63% of their current income when they retire, well short of the 75% to 80% generally assumed by planning professionals.

In addition, a large segment of Americans simply doesn’t have access to employer-sponsored savings programs such as 401(k) plans. The U.S. Department of Labor estimates that one-third of the nation’s workforce doesn’t have access to a retirement plan. A separate survey of participants in defined-contribution plans found that, even when they have access to a plan, four in 10 contribute less than 5% of their annual salary.

U.S. investors see clear hurdles to financial security in retirement, identifying their three greatest challenges as long-term care and healthcare costs, not saving enough, and outliving their assets. When asked how they would make up for an income shortfall, two-thirds of U.S. investors say they will continue to work in retirement.

“Americans must come to grips with their increasing responsibility for their own retirement security,” said Ed Farrington, Executive Vice President of Retirement Services for the asset management firm. “The leading nations in our research are developing effective solutions, but we also need greater commitment by decision makers, engagement by individuals and a willingness to learn from the experiences of other countries around the world.”

A Stellar Year for the Old Mutual Total Return Bond Fund

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Bill Gross: "En deuda soberana no merece la pena el riesgo" — CC-BY-SA-2.0, FlickrPhoto: Pau. A Stellar Year for the Old Mutual Total Return Bond Fund

Just over a year ago, on July 6th 2015, Old Mutual Global Investors, part of Old Mutual Wealth, welcomed Bill Gross back as fund manager of the $330 million Old Mutual Total Return USD Bond Fund.

The fund seeks to maximise total return consistent with preservation of capital and prudent investment management. Ranking in the 1st quartile, the Fund has returned 7.61% against the benchmark’s return of 6.97%

Heading into the second year of managing this fund under Janus Capital Group, while facing a fairly stagnant economic environment and with the possibility of de-globalisation, Bill said: “Worry for now about the return ‘of’ your money, not the return ‘on’ it. Our Monopoly-based economy requires credit creation and if it
stays low, the future losers will grow in number. Until governments can spend money and replace the animal spirits lacking in the private sector, then the Monopoly board and meagre credit growth shrinks as a future deflationary weapon.”

When asked where he was looking for value in the bond market, he added: “Sovereign bond yields at record lows aren’t worth the risk and are therefore not top of my shopping list right now; it’s too risky. Low yields mean bonds are especially vulnerable because a small increase can bring a large decline in price.”

He also commented about his time as an investor, saying: “In an industry driven by facts and figures, stats and claims, here is another; I am heading very close to marking a half century of financial industry experience. Yes, much has changed in those near on five decades but for every challenge there has been an equal measure of opportunities. This portfolio can invest across global fixed income markets with the flexibility to utilise the high conviction views that me and the team have, in order to capitalise on those challenges and opportunities in a balanced way. Each day seems to bring fresh investment prospects, though all viewed with a cautionary caveat at this time.”

Warren Tonkinson, managing director, Old Mutual Global Investors comments: “We were thrilled that we were able to welcome back Bill as steward of this fund, and a year on the performance numbers speak for themselves. The past year has thrown up a number of economic curve balls which Bill and his team have been able to deal with, if not avoid, thanks to their vast experience of managing bonds throughout complex market conditions. Our thanks go to Bill for steering this fund positively through ‘choppy waters’. We look forward to working with Bill and the team for many years to come.”

Fixed Income Investors Should Seek Opportunity in Emerging Market and Investment Grade Bonds

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In a market update webcast, Western Asset Management Chief Investment Officer Ken Leech described a global economy rife with problems – yet one that continues to grow, especially in the United States, even if slowly and with evident risks.

“We expect steady, unspectacular U.S. and global growth,” Leech said adding: “That’s been our basic message: slow but sustainable growth globally. The fear the market had in the first quarter, that the slow growth rate might actually fall, is what got the markets in pretty dire straits.”

During that first quarter, Western Asset did not believe the global growth situation was going to develop into a global recession, (a prediction that has so far proven correct), but it has warranted exceptional monetary accommodation.

“Policymakers have to be attentive to downside risks, especially in an environment where U.S. and global inflation remain exceptionally subdued,” Leech said. “Fortunately, central bank accommodation is aggressive, and increasing. That means U.S. Treasury bonds and sovereign bonds will be underpinned by these low policy rates, which will continue around the world.”

As for the U.S. Federal Reserve, which Leech said has made “a dovish pivot,” he concluded, “The Fed is going to be very cautious, and is unlikely to be moving rates up any time soon.”

Leech continues to see strong opportunity ahead in investment grade (IG) corporate bonds. Regarding Europe, the recent Brexit vote injected a high level of uncertainty into the outlook.
He expects that the European Central Bank (ECB) will expand its QE program, both in length of the program and the size. Addressing emerging markets, Leech reported a generally positive outlook. “There’s a real case to be made for emerging markets, both in local currency and dollar-denominated bonds,” he said. “That’s an area we are focusing on even more meaningfully than coming into the year. The yield spread between EMs and developed has reached crisis wide. When you think about valuations and people needing yield, this is where yield is abundant… The two positions we’ve liked structurally have been Mexico and India. Over the course of the year we have been opportunistically investing in a number of others. One I’d highlight is Brazil.”

“Another point highlighted by the World Bank is the bumpy adjustment in China,” he added. “China’s growth is going to be slow. We need to be very thoughtful about it, but the policy adjustment in China was so aggressive that they could avoid a hard landing.”

“Global headwinds are straightforward. When you look at world GDP, we have been in the camp that a 3 percent growth rate, very slow by historical standards, can be maintained. A low bar, and it’s going to take a lot of policy help. Fortunately, we’ve had that, which truncated some of the downside risk. But the major headwind of growth over time is the enormity of the debt burden around the world. It’s going to take time, low interest rates and a continuation of policy support.” He concluded.

You can watch the replay of the webcast in the following link.

Nikko AM Adds a Global Credit Fund To Its UCITS Line-Up

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Nikko AM añade un fondo de crédito global a su gama de estrategias UCITS — CC-BY-SA-2.0, FlickrPhoto: Marco Galasso . Nikko AM Adds a Global Credit Fund To Its UCITS Line-Up

Nikko Asset Management is launching a Luxembourg domiciled Global Credit Ucits fund on 3 August.

The fund aims to target an excess return of 1.5% against the Barclays Global Aggregate Corporate Index and also has an absolute return target of 4% by investing worldwide in a portfolio of 70-120 corporate bonds. The team adopts an active investment approach based on thorough fundamental research, taking advantage of mispricings in global credit markets.

It is managed by head portfolio manager Holger Mertens and supported by the firm’s Global Credit teams based in London, Tokyo, Singapore, Sydney, Auckland and New York.

Nikko AM has been launching more Ucits funds to its product line-up, to meet global investors’ evolving demand for exposure to diverse products and strategies. This is the latest, following the recent launch of a Japan Focus Equity Ucits and an Asia ex-Japan, Global Equity and Multi-Asset Ucits in 2015.

“We are launching the fund in response to investor need for consistent and sufficient returns in a low yield environment through a diversified and high quality credit portfolio. The need is increasing for a highly skilled active fund management team with truly global resources, and experience in different regions of the world,” said Nikko AM head of Global Fixed Income, Andre Severino.

Fidelity Launches Fidelity Go

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Fidelity Investments has announced the national launch of Fidelity Go, an advisory solution designed for investors seeking a trusted team to manage their money through a simple and efficient digital experience.

The platform was developed in collaboration with younger, digitally-savvy investors, and is a unique combination of a professionally managed portfolio, an easy-to-use digital dashboard, integration with Fidelity’s broader investment tools and services, and an all-in cost that is among the lowest in the industry.

“Fidelity Go makes professionally managed portfolios broadly accessible by helping people move from saving to investing quickly and efficiently, with costs starting at approximately $20 a year,” said Rich Compson, head of managed accounts at Fidelity. “Our goal is to help people meet their lifetime financial needs, and Fidelity Go is a new way for Fidelity to help digital-first investors and those just getting started.”

Investors also benefit from Fidelity’s broader capabilities, including integration with its online financial planning tools, ongoing monitoring with Fidelity mobile apps including Apple Watch alerts, and the ability to direct the unlimited 2% cash back from the new Fidelity Rewards Visa Signature Card into their Fidelity Go accounts. “Integration with Fidelity’s broader experience can help customers both enhance and simplify their financial lives,” said Compson.

Independent Advisors Show Greater Satisfaction Than Employee Advisors

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The J.D. Power 2016 U.S. Financial Advisor Satisfaction Study recently released reveals that overall satisfaction averages 722 among employee advisors, up 21 points from 701 in 2015, and 755 among independents, down 18 points from 773 last year.

The study measures satisfaction among both employee advisors (those who are employed by an investment services firm) and independent advisors (those who are affiliated with a broker-dealer but operate independently) based on seven key factors (in alphabetical order): client support; compensation; firm leadership; operational support; problem resolution; professional development support; and technology support. Satisfaction is measured on a 1,000-point scale.

“No doubt, the wealth management industry is in the eye of the storm right now, and the implications are far-reaching for firms that have been rooted in the traditional financial advisory services business model,” said Mike Foy, director of the wealth management practice at J.D. Power. “Financial advisors will obviously still be a critical part of the future of the business. However, key industry trends—such as the availability of low-cost robo-advice; the rise of so called “validators” who want to make more of their own financial decisions even while supported by an advisor; and the new fiduciary rules putting clients’ best interests ahead of an advisor’s own profit—set the stage for fewer and different kinds of advisors and an increasingly exclusive focus on the high net worth segment where FAs can add the most value.”

The study finds that large scale retirement is a reality with nearly one-third (31%) of advisors poised to retire in the next 10 years. Between 2014 and 2016, the number of advisors indicating they plan to retire in the next 1-2 years has risen to 3% from 2%.

Also that many advisors are moving to independent RIA shops, switching firms.The number of employee advisors indicating they will likely go independent in the next 1-2 years doubled from 6% in 2014 to 12% in 2016 Another 12% of advisors say they are likely to join or start an independent registered investment advisor (RIA) practice in the next 1-2 years, up from 7%.

The study reveals that there are billions in losses at stake. At the current expected rate of attrition due to retirement and firm switching, a firm with 10,000 financial advisors may have more than half a billion (approximately $585 million) in annual revenue at risk during the next 1-2 years, highlighting the critical need to retain top producers and to effectively manage succession planning to transition assets to newer advisors.

Finally, the work shows investment firms must figure out how to satisfy their advisors because the stakes are so high. Among employee advisors who are highly satisfied (overall satisfaction scores of 900 and above), only 1% say they “definitely will” or “probably will” leave their firm in the next 1-2 years, compared with 46% of dissatisfied employee advisors (scores of 600 and below) who say the same. The same trend holds true for independent advisors (2% and 45%, respectively).

“These changing dynamics in the advisory business create new challenges for firms to focus retention efforts on top producers; attract new talent with skills aligned with the direction the business is heading; and create or refine hybrid business models that incorporate more technology and self-service options into their offerings,” Foy added.

Bond Funds and Equity Funds, the Worst and Best Performing in a Global Scale

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According to Otto Christian Kober, Global Head of Methodology at Thomson Reuters Lipper, assets under management in the global collective investment funds market grew US$188.8 billion (+0.5%) for June and stood at US$36.2 trillion at the end of the month. Estimated net outflows accounted for US$27.8 billion, while US$216.6 billion was added because of the positively performing markets. On a year-to-date basis assets increased US$998.9 billion (+2.8%). Included in the overall year-to-date asset change figure were US$9.6 billion of estimated net outflows. Compared to a year ago, assets decreased US$122.0 billion (-0.3%). Included in the overall one-year asset change figure were US$467.7 billion of estimated net inflows. The average overall return in U.S.-dollar terms was a positive 0.4% at the end of the reporting month, outperforming the 12-month moving average return by 0.7 percentage point and outperforming the 36-month moving average return by 0.3 percentage point.

The top fund promoter by market share was Vanguard, followed by Fidelity and BlackRock.

Most of the net new money was attracted by bond funds, accounting for US$18.1 billion, followed by commodity and “other” funds with US$4.2 billion and US$1.9 billion of net inflows, respectively. Equity funds, with a negative US$25.6 billion, were at the bottom of the table for June, bettered by money market funds and alternatives funds with US$19.8 billion and US$4.9 billion of net outflows. The best performing funds for the month were commodity funds at 4.5%, followed by “other” funds and bond funds with 1.6% and 1.5% returns on average. Equity funds bottom-performed with a negative 0.5%, bettered somewhat by alternatives funds and real estate funds with negative 0.4% and negative 0.2%.

In a year-to-date perspective most of the net new money was attracted by bond funds, accounting for US$202.9 billion, followed by commodity funds and “other” funds with US$22.3 billion and US$6.1 billion of net inflows, respectively. Equity funds were at the bottom of the table with a negative US$115 billion, bettered by money market funds and mixed-asset funds with US$89.3 billion and US$43.3 billion of net outflows. The best performing funds year to date were commodity funds at 13.7%, followed by bond funds and mixed-asset funds with 5.7% and 4.7% returns on average. Alternatives funds bottom-performed with a negative 0.1%, bettered by “other” funds and money market funds with 1.6% and 1.6%.

Most of the net new money over the past 12 months was attracted by money market funds, accounting for US$422.3 billion, followed by bond funds and alternatives funds with US$186.3 billion and US$27.6 billion of net inflows, respectively. Mixed-asset funds were at the bottom of the table with a negative US$157.5 billion, bettered by equity funds and “other” funds with US$35.6 billion and US$1.7 billion of net outflows. The best performing funds over the last 12 months were bond funds at 1%, followed by money market funds and mixed-asset funds with negative 2.6% and negative 3.6% returns on average. Commodity funds performed the worst with a negative 7.9%, bettered by equity funds and “other” funds with negative 6.9% and negative 5.2%.

Looking at fund classifications for June, most of the net new money flows went into Lipper’s Bond USD Medium-Term classification (+US$11.0 billion), followed by Money Market GBP and Bond USD Municipal (+US$6.9 billion and +US$5.6 billion). The largest outflows took place in Money Market EUR with a negative US$22.2 billion, bettered by Equity US and Equity Europe with negative US$15.0 billion and negative US$7.8 billion.

Looking at fund classifications year to date, most of the net new money flowed into Bond USD Medium-Term (+US$57.5 billion), followed by Equity Global ex US and Bond USD Municipal (+US$39.7 billion and +US$33.1 billion). The largest net outflows took place in Money Market USD, with a negative US$57.5 billion, bettered by Equity US and Money Market CNY with negative US$55.1 billion and negative US$49.7 billion.

Wealth Firms Must Improve Digital Maturity to Avoid Profit Loss

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Las firmas de gestión de patrimonio deben madurar digitalmente para evitar la marcha de clientes millonarios: hasta un 56% del negocio está en peligro — Photo: Oberazzi, Flickr, Creative Commons. Wealth Firms Must Improve Digital Maturity to Avoid Profit Loss

Long-term success for wealth management firms will in part depend on their willingness to explore collaborations and partnerships with FinTech companies, as well as improve their digital maturity finds the 20th annual World Wealth Report (WWR) released by Capgemini.

According to the firm, wealth management firms are missing the mark when it comes to implementing digital capabilities, and as a result, are putting profits, client, and employee retention at significant risk. They note that up to 56 percent of firms’ net income could be at risk due to client attrition due to lacking digital capabilities. The report also finds that more than half of wealth managers (55 percent) are not fully satisfied with their firm’s digital capabilities and consequently, over a third (39 percent) would even consider looking for employment elsewhere.

“As wealth firms and wealth managers face a number of converging market dynamics, including increased competition from FinTechs, firms need to be making progress on all aspects of their digital capabilities to ensure they remain relevant to clients who may be wooed by their technology-driven competitors,” said Anirban Bose, Head of Global Banking and Capital Markets, Capgemini’s Financial Services Business Unit. “The latest World Wealth Report findings reinforce the need for firms to adapt to meet evolving client and manager expectations alike, as nothing less than a high level of digital maturity will be adequate in the face of digitally-native competitor providers.”

Limited digital maturity despite increased HNWI demand and threat from FinTechs
With High Net Worth Individual (HNWI) demand for digital services continuing to increase in areas where FinTechs are strong, such as automated advisory platforms, open investment communities and third party capability plug-ins, wealth management firms cannot afford to fall short in any aspect of their digital strategy. In the past year alone, the report found HNWI demand for automated advisory services has shot up nearly 20 percentage points, from 49 percent in 2015 to 67 percent in 2016. Additionally, 47 percent of HNWIs say they now use peer-to-peer platforms at least weekly to find out about investment ideas.

The correlation between digital maturity and asset acquisition and retention is only expected to increase in the coming years. Seventy-three percent of HNWIs reported that digital maturity is very or somewhat significant in their decision to increase assets with their wealth management firm over the next 24 months, a percentage that increases to 86 percent for HNWIs under 40.

Demand for digital tools runs high but satisfaction among wealth managers runs short
Wealth managers have joined HNWIs in expressing demand for digital tools with richer functionality. This was found to be true across all regions and age groups at 81 percent. Yet while wealth managers showcase high demand for digital, firms for the most part have not fulfilled these requests. Less than half of wealth managers are satisfied with their firm’s digital capabilities, despite citing digital tools as valuable in supporting a number of functions, including increased collaboration with clients (86 percent), the ability to better leverage client data to identify growth opportunities (82 percent), and even time savings through reduced paperwork time (82 percent).

Social media and mobile tools were found to be especially lacking, with wealth managers of all ages saying that view prospecting through social media is an important digital capability they require (60 percent), but it was the area with which they are least likely to be satisfied.

Wealth management firms must become digital leaders to achieve success
As their role evolves, long-term success for wealth management firms will depend on putting wealth managers at the center of digital disruption, and their willingness to explore collaborations and partnerships with FinTech companies. Engaging wealth managers will be important as more than three-quarters (79 percent) of wealth managers say they would like to pilot new digital tools, and more than half (53 percent) have already lobbied their firm to improve digital capabilities. A surprising amount (42 percent) has even invested their own money to purchase off-the-shelf software in an attempt to plug gaps in their firms’ offerings. Several of the world’s largest firms are currently exploring accelerator programs designed to attract startups interested in collaborating. Other firms are investing in or acquiring FinTechs in an attempt to jumpstart their digital capabilities, especially in the areas of automated advice and investment management services.

The report highlights how the most successful firms will be those that take bold steps to overcome resistance to change and embrace a world that increasingly values digital interactions.

You can explore the interactive report website at the following link.

The Great Migration to Emerging Market Debt has Begun

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After a three-year bear market in emerging markets, low-to-negative yields, a continued expansion in the aggregate balance sheets of the larger central banks—Fed, ECB, BoJ, BoE and PBo—as well as improving fundamentals in emerging world, are creating a great migration toward Emerging Market (EM) debt.

With the ‘substantial’ increase in economic, political and institutional uncertainty following the Brexit vote, the IMF has cut their global forecast for 2017 by 0.1 percentage point, to 3.4%. The fallout from the vote remains locally contained however, and the IMF expects growth in emerging markets to accelerate to 4.6% in 2017, from 4.1% this year and 4.0% in 2015. Even had the vote been to remain, the IMF stated they had been prepared to raise the outlook for 2017, “on the back of improved performance in a few big emerging markets, in particular Brazil and Russia.”

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While the three key headwinds against EM growth—1) USD strength fueled by monetary policy divergence in developed markets, 2) uncertainties around China’s growth and FX policy, and 3) a sharp decline in commodity prices, are loosing strength. After almost three years of subpar growth, some “green shoots” have appeared in EM economies -specially in China, Brazil and Russia, which were most hit during the recent downturn. Higher commodity prices have provided respite to long-suffering commodity producers; a fundamental healing that reinforces the recovery in asset prices. And although global policy divergence is still on the table, – with a slightly hawkish Fed and Japan going for a modest dose of monetary stimulus, the scarcity of yield has actually been accentuated by the Brexit vote.

Meanwhile, there are still other strong political uncertainties in the developed world that worry investors. Beside the U.S. elections on November 8, and Spain’s inability to define its government, Italy will be conducting a constitutional reform referendum later this year and Germany is scheduled to undergo federal elections in late-summer 2017.

Considering the actual political event risk in developed nations with low or negative yields, investors worldwide are once again looking into EM, making it so portfolio flows may become a key driver of EMD this year.

While local currency debt provides a greater potential for alpha generation, given currency volatility heightens in periods of uncertainty, hard currency EM debt is likely to provide a more stable income stream than local currency counterparts. A pure EM unconstrained strategy that picks from the best opportunities available might be the best option for investors seeking income stability and total return in Emerging Markets debt. Meanwhile, for those looking to maximize the return on their investment through a combination of capital growth and income, an option would be to invest on the BGF EM local currency bond fund. The Fund invests at least 70% of its total assets in fixed income securities denominated in local currencies of developing market countries, including bonds and money market instruments.

Key Accounts and Wholesaling Teams Will Support Fewer, Larger Distribution Partners

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New research from Cerulli Associates explores the evolution of wholesaler and key accounts roles in response to the influence of professional buyers at centralized home-office research teams in the United States.

“Asset managers are on a continuous hunt to identify the most effective factors impacting a financial advisor’s product decisions,” states Kenton Shirk, associate director at Cerulli. “As the industry evolves, managers face a key question: to what degree do centralized research teams at home offices influence investment decisions, as opposed to decentralized decisions made by financial advisors and, in some instances, their teams?”

“The challenge lies in discerning the extent to which various parties–the home-office research team versus other influencers within a practice, such as investment analysts or chief investment officers (CIOs)–shape a given advisor’s product decision,” Shirk continues. “As a result of these shifting points of influence, key accounts and wholesaling teams are wading through increasingly murky waters, and their structures and strategies are changing in response.”

The firm believes that the dueling influences of centralized home-office research teams and decentralized advisor investment decisions will have significant ramifications for asset management distribution teams in coming years. With a large and diverse field of advisors, asset managers of scale will need to address both home-office research teams and individual advisor relationships. Asset managers need to cater to large advisor teams with centralized portfolio management and institutional-like buying processes. In addition, they need to address distribution partners to ensure that they maximize their influence with advisors who rely on recommended lists.

“Cerulli believes that key accounts teams will support fewer, larger distribution partners. Key accounts teams will grow in importance and asset managers will continue increasing the quantity and quality of their teams and resources,” Shirk explains. “The role of wholesalers will also continue to evolve. Advisors who rely heavily on home offices can still be influenced by wholesalers who can provide information to help an advisor make a final decision. But wholesalers need to pinpoint these subtle influence points quickly. Identifying these high-impact opportunities will likely be a major objective of predictive analytics initiatives as they continue to evolve.”