While the deficit is larger and the date of exhaustion nearer, the story remains the same – the Social Security program faces a financing shortfall over the next 75 years, which should be addressed soon to restore confidence in the nation’s major retirement program and to give people time to adjust to needed changes.

The Retirement Income Journal reported on this very question, Social Security: A Manageable Problem. Based on this article, the solution to long-term funding for Social Security is manageable if we address it today. The question is:

Last month we asked if you would use ETFs in your personal retirement plan account(s) if available − three-quarters of you said,  yes!¹

Interestingly, despite the popularity of ETFs among investors and advisors, we found the percent of plans offering ETFs as part of their investment line-up remained unchanged from one year ago. However, two segments, Small and Mid-sized plans, reported a significant increase in the number of plans making ETFs available to their plan participants.²

The demand has so far outstripped sponsors’ (and providers’) ability to deliver. But that suggests it is only a matter of time before providers find a way to incorporate these popular products alongside their traditional retirement plan offerings.

1. Poll results may not be statistically significant.
2. Source: Cogent Research Retirement Planscape® 2012

Providing effective wholesaler support is an important element of enhancing an advisor’s attitude and loyalty towards asset managers. In fact, nearly 4 in 10 advisors indicate that in-person wholesaler visits are the most effective means of communicating with them, second only to e-mail.

With this in mind, Cogent Research^® initiated an examination to pinpoint which elements of wholesaler support most impact wholesaler effectiveness, and thus result in a deeper connection with financial advisors.

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Earlier in the week we discussed investment product usage trends among advisors. Here we dig deeper and look at the difference in product usage by the different channels.

With the exception of mutual funds, product usage in the advisor community varies dramatically by channel. For ETFs in particular, National Wirehouse advisors and RIAs have led the trend. Nearly 60% of advisors in these channels were selling ETFs in 2007 compared to only 40% of advisors in the Regional, Independent, and Bank channels.

Flash forward to 2011: Now, 60% of Regionals, Independents, and Bank advisors are selling ETFs, while Wirehouse and RIA usage has increased to 80%. This higher ETF adoption in the Wirehouse and RIA channels is likely due to an increased reliance on asset-based fees in these channels. RIAs have historically been the most reliant on fee-based compensation (88%), followed by advisors in the Wirehouse channel who now report that 60% of their total income is fee-based rather than transaction-based.

Looking forward, advisors expect the proportion of assets allocated to ETFs to grow. While mutual funds are expected to garner the greatest share of new assets, ETFs are closing the gap. By 2013, advisors expect one in four (24%) new dollars will be allocated to mutual funds, while one in five dollars (20%) will go to ETFs.

Source: Advisor Brandscape^®

Advisors continue to rely upon a wide variety of investment products to help them service their clients’ investment needs. In fact, usage of all products except variable annuities is up significantly since 2007. But of all the products advisors include in their bag of tricks, the increase in exchange traded funds (ETFs) is the most significant. While uncertainty about the future of mutual funds may challenge the predictive abilities of industry pundits, there is little doubt that ETFs are here to stay and will become a progressively important part of the product landscape.

ETFs experienced a 10% increase in advisor penetration over the past year alone, from 60% to 66%, and more than a 40% increase from 2007, where ETFs were used by only 46% of advisors. Use of individual securities, separately managed accounts, and fixed annuities is flat compared to 2010, but up significantly over the past five years. At present, nearly nine out of ten (87%) advisors use individual securities, and eight in ten (81%) use variable annuities. Just under half (47%) of advisors use separately managed accounts (SMAs), and 39% reported that they include fixed annuities among the products used on behalf of clients.

Check back on May 2nd for a follow-up post that looks at product usage trends by channel.

Source: Advisor Brandscape^®

Corresponding to the changes in product ownership, the proportion of total assets that mutual funds represent in investor portfolios has declined substantially – from 53% in 2006 to just 26% in 2011. In a clear sign that investors continue to have doubts about market stability, asset allocation to bonds, cash, and CDs has increased 75%-80% since 2006. Additionally, the popularity of annuities is growing at the very time when many providers are being forced to reduce their commitment to these products. Investors now allocate 13% of their assets to annuity products, a significant 117% increase over 2006 levels.

Our Investor Brandscape^® data show that investors are acknowledging the need for greater diversity in their product ownership and more awareness and understanding of products outside of traditional mutual funds. With these changes come opportunities for distributors and asset managers to redefine their mission and strengthen ties with a more targeted and savvy audience.

On April 30th we will look at advisor trends and The Rise of ETFs.

Source: Investor Brandscape^® 2012

The rise of investment conservatism among the affluent population over the past six years has had a remarkable effect on product usage and asset allocation.

In 2006, the mutual fund was king. A full 94% of affluent investors owned mutual funds, and they allocated over half of their investable assets to this single investment vehicle. Cash was also a popular holding, with 87% ownership among affluent investors, albeit with only 10% total asset allocation. Less than one-third of investors owned annuities in 2006, and fewer than one in ten owned ETFs.

Over the past six years, we have seen a push toward greater product diversity and a significant depletion in use of mutual funds. Today, only 71% of investors own mutual funds, a 24% drop since 2006 levels, while the use of more cost-effective products like ETFs is up over 170%. Products that offer principal protection and income guarantees, particularly annuities, are up 40%. The use of alternative investments, such as hedge funds, has also increased dramatically since 2006 as investors seek alternate sources of investment return.

Check back for more information on investors and asset allocation trends on April 25, 2012.

Source: Investor Brandscape^TM 2012

April marks our sweet 16th birthday,  so what better time to reflect on the past – and future – of the the two audiences that ignited our syndicated business – Investor and Advisor Brandscape^®. Throughout April we will be posting our findings on investor and advisor trends – we hope you enjoy these insights.

While the first Cogent Research Investor Brandscape® survey was in the field, late October 2006, the DOW reached a new all time high of 12,164. Investors have had quite a wild ride since then, with the DOW plummeting below 6,700 in March of 2009 and rising back up to 2006 levels by October of 2011. The effect of this extreme volatility in the market has been an increase in investor conservatism and a dramatic shift in both product usage and asset allocation.

Although younger investors now make up a greater proportion of the affluent population, investor risk tolerance continues to become more conservative. In 2006, investors held just over one quarter of their assets (26%) in low risk investments. By 2009, investors were still reeling from the effects of the financial meltdown  and shifted a substantial amount of assets out of high and moderate risk investments to more conservative “low risk” holdings. Today, despite the rebound in the equity market, investors have no apparent desire for increased risk. In fact, the proportion of assets deemed “low risk” has increased to 41%. Meanwhile, there has been a corresponding decline in the proportion of assets allocated to moderate risk investments – from 49% in 2006 to 40% in 2011.

If anything, investors seem to be settling into a more conservative mindset, which continues to fuel speculation that today’s younger investors will remain more conservative throughout their lives as a result of their recent experiences – not unlike their great grandparents who went through The Great Depression. This increasingly  conservative risk profile will undoubtedly have a lasting impact on the product selection and investment strategies employed by the affluent investor population going forward.

Check back for more information on investor product ownership on April 23, 2012.

Source: Investor Brandscape^® 2012

We love to know what you think – In our April poll we want to know if you would use ETFs in your retirement plan. Next month we will take a look at what you have told us and post an update with the results.
Thanks!

While the DOW is not yet near its all-time high of 14,164 set in October 2007, the index did create a lot of buzz when it hit 13,000 in February this year. Whereas reaching this milestone is not technically important, it does attract a lot of attention among retail and institutional investors alike – particularly since it took almost four years to climb back to this level.

With this mind, Cogent asked our readers to provide their opinion on where the DOW is likely to go from here. As noted below, our readers are cautiously optimistic. While about a quarter (28%) expect the DOW to fall below 13,000, almost half (44%) expect the index to continue its ascent and reach between 13,500 and 14,000 by election day.  Who’s right?  We’ll check back on Wednesday, November 7th.*

Take April’s Poll: If ETFs were offered in your personal retirement plan would you use them?