The asset-management industry just got a Christmas gift in the form of the biggest overhaul to the retirement system in more than a decade.
The Setting Every Community Up for Retirement Enhancement Act, widely referred to as the Secure Act, promises a host of new and revised rules that will change everything from the way Americans use IRAs to the timing of when they are required to take distributions from certain retirement funds.
The act, expected to soon be signed into law after it cleared Congress on Thursday, also includes provisions that would expand Americans’ access to 401(k)s. One provision would allow unrelated employers to band together in so-called multiple employer plans to make it easier and less expensive to offer workplace savings plans for employees.
Collectively, the changes in the Secure Act stand to benefit Americans saving and paying for retirement, but they also will be a boost to the asset-management industry, which has been largely supportive of the measure. And among asset managers, it’s likely that the biggest firms like Fidelity Investments, TIAA, and Vanguard Group are best positioned to roll out new offerings and new services to capitalize on the Secure Act’s changes.
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The benefits to the asset-management industry are real, but overall they’re “incremental, not transformational,” says Neil Lloyd, a partner at Mercer who is focused on defined contribution plans like 401(k)s. Those incremental benefits, he adds, aren’t hard to spot. “More savings, that’s a simple one,” he says. “More assets being in a plan, more contributions coming in, that’s positive for any investment manager.”
Fidelity, TIAA, and Vanguard praised the Secure Act in statements to Barron’s. “This much-needed bill stands to reshape and modernize much of our private retirement system by increasing access for millions of Americans to a workplace retirement plan,” TIAA CEO Roger W. Ferguson Jr. said in a statement.
Lloyd noted that one part of the legislation, multiple employer plans, or MEPs, would generally be positive for asset managers and could also affect the broader market for corporate retirement plans. Some employers who already offer plans to their workers, he says, could shift to MEPs to reduce costs.
Yet while MEPs will likely attract employers by offering low fees, benefiting passive fund managers, Lloyd says plan providers will need to move beyond low fees. “There have to be other things to attract employers, like offering access to alternative assets,” he says.
That could mean offering a larger variety of fund types or asset classes, such as alternatives or hybrid funds that blend stocks and bonds with annuities.
Offering annuities, however, would mean plan providers partnering with insurance companies and possibly taking on the fiduciary duty to select the annuities themselves. And that’s not something smaller firms necessarily have resources to do.
And that would also benefit larger asset-management firms, Lloyd says, because they “have the strength and bandwidth” to offer those types of products.
Write to Ben Walsh at ben.walsh@barrons.com
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December 20, 2019 at 06:41PM
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A Big Beneficiary of the Secure Act? Big Asset Managers. - Barron's
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