PLANADVISER - November/December 2019 - 17

In practice,
this means establishing
what Donaldson calls " real diversification "
in the setup of the weights of the
asset classes that the participants are
exposed to-and continually monitoring
this strategy to make sure it still
makes sense as the world evolves.
" In a low interest rate environment,
trying to juice returns on the fixedincome
side means moving into higheryielding
alternatives other than say,
government debt or even investmentgrade
credit, " Donaldson says. " Greater
return potential may be there, but there
are tradeoffs to doing this. The pros, of
course, are that, yes, you may get an
increase in yield for a period of time.
The negative tradeoff is significantly
lower diversification for the whole portfolio
and higher risk concentration. The
more credit you get into, generally, the
higher correlation your portfolio will
have to the equity markets, should
something go wrong. "
According to Donaldson, the fact
that retirement plan fiduciaries are the
ones making the decisions about which
TDFs to offer is important to keep in
mind throughout this discussion.
" Pursuing that higher level of yield
makes sense for some people, but you
have to be willing to gain the higher
yield by having a higher concentration
in similar types of securities-lowerquality
bonds that are more correlated
with equities, " he says.
" This means
that, if something goes significantly
wrong, that extra 50 basis points [bps]
you tried to squeeze out of the market
may pale in comparison with the downside
you could experience. "
In
terms of specific
Donaldson says, Vanguard believes
strongly in the diversification potential
of high-quality non-U.S. government
bonds, and it invests accordingly. He
freely admits these are actually even
lower-yielding on a local basis than the
U.S. fixed-income market.
" Instead of seeking higher-yielding
instruments, " he says, " we feel that
a strategic asset allocation of having
non-U.S. bonds with another 30 or 40
countries represented is highly valuable
even when their rates are low and
even when those are, in some cases,
negative. " -John Manganaro
TALKING POINTS
The Uncashed Check Problem
Missing participants are a familiar issue for plan
sponsors, who must ensure distributions get made.
But what about unresponsive participants, who
receive their checks but don't cash them-
especially problematic when distributions are
automatic? IRS Revenue Ruling 2019-19 provides
401(k) plan administrators with guidance on
how to report and stop such auto-distributions.
SPARK Institute conducted a member survey
this year to study the extent of the problem. The
10 firms participating issued over 4 million checks
in 2017. Of those, about 185,500 (4.5%), having a
value of $47 million, went uncashed.
Uncashed Amount
l >$100,000
l >$5,000 - $100,000
l >$1,000 - $5,000
l $100 - $1,000
l <$100
Source: SPARK Institute
The Benefits of Outsourcing
According to AssetMark study " The Power of Outsourcing Investment Management, "
out of 700-plus advisers ...
87%
say
holdings,
outsourcing
has met or
exceeded
their
expectations
79%
plan to up the
percentage
of their outsourced
assets
in the next
three years
78%
wish they had
outsourced
investment
management
functions
sooner
68%
believe that
outsourcing
has strengthened
their
client
relationships
67%
have
experienced
an increased
rate of
new client
acquisitions
Record Year Likely for M&As
The third-quarter value of advisory and
wealth management firm merger and
acquisition deals is nearly triple the value
as at Q3 2018, say PwC analysts. They
say a record year remains likely.
planadviser.com November-December 2019 | 17
No. of Checks
37
1,326
2,720
36,766
144,669
TOTAL
$47 million/
185,500
checks
Total Dollar Value
$5,811,529
$21,615,634
$6,198,042
$11,534,164
$1,877,102
Percentage
0.02%
0.72%
1.46%
19.82%
77.98%
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PLANADVISER - November/December 2019

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