Ouch. What about those “Two-Plan Tonys” that sell a packaged 401(k) plan and are never heard from again? They’re outperforming you.
“When compared with portfolios that are advisor-controlled and client discretionary, packaged portfolios generate stronger returns,”Frederick Pickering, data analyst at research and consulting firm Cerulli Associates, said in a statement. “Cerulli believes this performance results from a combination of selecting superior managers and staying invested during market downturns and recoveries.”
Also, digital advice platforms are partnering with advisors to deliver packaged offerings to low-balance accounts in a scalable way. These platforms are heavily packaged, with asset allocation happening at the home office and manager selection consisting of grading exchange-traded funds by various factors, such as cost, liquidity, and tracking error.
“Home-office packaged assets under management have experienced strong growth during the past decade, expanding at a 22.8 percent compound annual growth rate between 2005 and 2015,” Pickering added. “These platforms offer scalable advice for small-balance accounts, which drive their growth.”
“When analyzing the difference in performance, packaged platforms are less tactical than portfolios in open arrangements,” he continued. “We observe this effect when the market declines and packaged portfolios decline further than their open counterparts. After the market reaches its low point and prices recover, we observe that packaged portfolios generate higher returns than their open counterparts.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
