“Show of hands—do you offer alternative investments in retirement plans?” Build Asset Management’s Matt Cawley asked attendees of the GRP Advisor Alliance (GRPAA) annual conference in Haines, Alaska.
No hands were raised, and Cawley said he wasn’t surprised. Non-correlated alternative investments are somewhat secretive and in a “black box,” but for advisors who are “creating something significant, you can influence money managers to make something customized to use both within and outside the scope of the retirement business.”
He noted the current quantitative easing environment in which yields are low, causing a traditional 60/40 portfolio to underperform.
“The traditional investor is going further and further out on the risk spectrum to find ballast for the fixed income side of the portfolio,” Cawley explained.
Inflation is rising, and price appreciation will eventually end, Alex McCarthy, Cawley’s Build colleague, added.
“Plan participants have to find a way to get yield,” he argued, noting the firm’s heavy emphasis on collective investment trusts (CIT). “You’ve got a 10 or 15-year track record to look back on in fixed income. What happened in the past 10 to 15 years will most likely not happen in the next 10-to-15-year period. We can’t keep kicking the can down the road.”
Discussion detour
Mirroring GRPAA founder Bill Cheney’s personality, a spirited yet meandering discussion then broke out among attendees over who owns the client relationship, which Kidder Advisers’ Keith Gredys summed up as, “the recordkeeper controls the retirement plan, but the advisor owns the relationship.”
Schroders Joel Schiffman steered the discussion back to investments, specifically the popularity of environmental, social, and governance (ESG), explaining that the firm has invested in the sector for 22 years and 100% of its positions ESG considerations.
“Our research shows that participants want ESG options in the investment menu,” Schiffman said. “Seventy percent would increase contributions if ESG were available, and more would increase their overall allocation to ESG if it were available.”
He rhetorically asked why plan sponsors are nonetheless hesitant about offering ESG choices to their employees.
“My guess is their risk issues,” he answered before noting that ESG is not a value or growth decision but one that’s personal to the individual.
“We get interest from pre-retirees to 20-somethings, but for different reasons,” Schiffman concluded. You absolutely can do well by doing good. In five years, we won’t even be talking about ESG; it will fully integrate.”
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.
