Cerulli: 'Embedded-Advice Funds' to Continue Growth Pattern

October 1, 2007 (PLANSPONSOR.com) - A new Cerulli Associates report forecasts a continued growth in "embedded-advice funds" - mostly target-date/lifecycle offerings - taking a holistic view of all of the investor's assets.

The report, The Cerulli Edge – U.S. Asset Management Edition, also said the next generation of the target-date/lifecycle products will go beyond what Cerulli said was the current products’ limited construction and rebalance mechanisms. Newer versions of the funds will include more than the current products’ predetermined asset mix, the research indicated.

Cerulli said the target-date/lifecycle products will become “more open,” will use a greater number of money managers, and will continue to focus on helping participants accumulate enough money to live during retirement. The researchers commented: “Longevity solutions will be introduced to DC plans in order to help create the inherent promise of   a DB plan for participants.” (See The Mother of Invention ).

Cerulli researchers also predicted a continued DB emphasis on the increasingly popular liability-driven investing trend (See  The Risk PoolCorporate Plan Sponsor of the Year: Slow and Steady ).

“In order to be able to meet liabilities regularly, asset allocation in the plans will likely move to more conservative investments, as well as spark an increased demand for long-duration products, derivative products, and low- to medium-volatility investments that can offer equity-like returns with bond-like risk,” Cerulli said. “Alternative asset classes will enjoy increased inflows.”

Cerulli analysts said the changes in the DB marketplace have come ahead of different approaches just beginning to show in other institutional market segments, such as in endowments and foundations, where there are similar concerns regarding liabilities.

Finally, Cerulli made an observation that advisers are likely to bring in more outside help in the future to work out the details of their client portfolio construction work.

“Cerulli analysts believe the number of advisers outsourcing portfolio construction will continue to grow in the long run,” the report asserted. “Best-practice advisers realize that the most valuable use of their time is not researching investments, but spending time with existing and prospective clients. As a result, more and more advisers will realize they are well served to hand off this duty to an unbiased third party.”

More information is at     http://www.cerulli.com/ .