Latest news with #CerulliAssociates
The Sun
7 hours ago
- Business
- The Sun
Trump's 401(k) order offers retirement savers crypto, private assets, but also higher fees and more risk
NEW YORK: The new White House order directing regulators to expand access to alternative investments in 401(k) plans, like crypto or privately owned companies adds a new layer of risk to the retirement portfolios for ordinary investors that they may not fully understand, investment professionals say. 'This is brand new; none of it has been stress-tested yet' in a market shock or long-term selloff, said Christopher Bailey, director of retirement, at Cerulli Associates, an asset management research firm. 'There are liquidity concerns, issues around fees, among others.' While industry advocates and the Trump administration say investments in private equity, crypto or privately held companies like ChatGPT developer OpenAI or Elon Musk's SpaceX hold the promise of greater returns, critics say the investments are inherently riskier, lack the same disclosures and carry higher fees than traditional retirement plans. 'I don't think people are talking enough about the potential for higher fees,' said Philitsa Hanson, head of product, equity and fund administration, Allvue Systems, a software and solutions provider for private asset managers. The executive order, she said, 'raises more questions than answers. Someone will need to be very thoughtful about how these types of assets can be incorporated' into 401(k) plans. Private equity and other alternative asset funds have increasingly been raising capital from wealthy individuals but are traditionally designed for institutional investors and typically include layers of fees. Private equity, for instance, has long had the '2 and 20' structure: managers collect a 2% overall fee, as well as 20% of any gains. In contrast, the mutual funds that today make up the lion's share of 401(k) plan assets offer fees that average a mere 0.26%, according to the Investment Company Institute. Dmitriy Katsnelson, deputy chief investment officer at Wealthspire Advisors, which manages $30 billion for affluent and high net worth individuals and families, notes that if the executive order triggers a rapid and significant change in the menu of investment plans open to investors, that would reverse the trend of the last few decades. 'It's been all about cutting fees, doing no harm,' Katsnelson said. 'It's going to take a while for people to come up with a framework to make this work and think about the risks.' Alternative asset managers will likely need to come up with new products with lower fees, greater liquidity and more transparency if they want to tap into the trillions of dollars and 90 million investors in employer-sponsored retirement plans. Jason Kephart, an analyst at Morningstar, said the fees for some alternative investments aren't clearly spelled out, some even have to be deciphered from footnotes. They 'might be even underrepresenting the actual cost to the end investor, and I have a hard time seeing how plan sponsors are going to get comfortable with that,' he said. 'I think there is going to be more light shed on all these fees and exactly where they are and make it transparent.' Under the current system, investors can also monitor fluctuations in their portfolio's performance on a daily basis and understand precisely what is contributing to those results, Hanson said. That won't be so easy for investments that aren't traded on open exchanges. 'Private equity, private assets are the opposite,' said Allvue's Hanson. 'You're asking systems designed for daily trades to support illiquid and sometimes manually priced assets. There's a fundamental mismatch there.' That creates an obligation on the part of asset managers and plan sponsors to increase their outreach and education efforts, suggests Cerulli's Bailey. A typical retirement fund investor 'is not sitting there thinking about optimizing their portfolio' and considering the impact of adding private assets to the mix on their risk or potential return, he said. Blackstone President and Chief Operating Officer Jon Gray recently told analysts that private assets are more appropriate for younger investors that have a longer investing horizon than for someone nearing retirement. One test case for the legal risks of putting retirement nest eggs in private markets has played out at chipmaker Intel , where employees brought a lawsuit over two retirement plans that included investments in hedge funds, private equity and commodities. An appeals court finally dismissed the complaint after seven years of court battles this year but lawyers at Debevoise & Plimpton said that asset managers and plan sponsors generally don't have the resources to manage multi-year litigation. Regulators will have to give the industry some legal protection from investor lawsuits to make good on Trump's plan, they said. (Reporting by Suzanne McGee and Isla Binnie in New York. Editing by Dawn Kopecki and Aurora Ellis) REUTERS
Yahoo
8 hours ago
- Business
- Yahoo
Analysis-Trump's 401(k) order offers retirement savers crypto, private assets, but also higher fees and more risk
By Suzanne McGee and Isla Binnie NEW YORK (Reuters) -The new White House order directing regulators to expand access to alternative investments in 401(k) plans, like crypto or privately owned companies adds a new layer of risk to the retirement portfolios for ordinary investors that they may not fully understand, investment professionals say. "This is brand new; none of it has been stress-tested yet" in a market shock or long-term selloff, said Christopher Bailey, director of retirement, at Cerulli Associates, an asset management research firm. "There are liquidity concerns, issues around fees, among others." While industry advocates and the Trump administration say investments in private equity, crypto or privately held companies like ChatGPT developer OpenAI or Elon Musk's SpaceX hold the promise of greater returns, critics say the investments are inherently riskier, lack the same disclosures and carry higher fees than traditional retirement plans. "I don't think people are talking enough about the potential for higher fees," said Philitsa Hanson, head of product, equity and fund administration, Allvue Systems, a software and solutions provider for private asset managers. The executive order, she said, "raises more questions than answers. Someone will need to be very thoughtful about how these types of assets can be incorporated" into 401(k) plans. Private equity and other alternative asset funds have increasingly been raising capital from wealthy individuals but are traditionally designed for institutional investors and typically include layers of fees. Private equity, for instance, has long had the "2 and 20" structure: managers collect a 2% overall fee, as well as 20% of any gains. In contrast, the mutual funds that today make up the lion's share of 401(k) plan assets offer fees that average a mere 0.26%, according to the Investment Company Institute. Dmitriy Katsnelson, deputy chief investment officer at Wealthspire Advisors, which manages $30 billion for affluent and high net worth individuals and families, notes that if the executive order triggers a rapid and significant change in the menu of investment plans open to investors, that would reverse the trend of the last few decades. "It's been all about cutting fees, doing no harm," Katsnelson said. "It's going to take a while for people to come up with a framework to make this work and think about the risks." Alternative asset managers will likely need to come up with new products with lower fees, greater liquidity and more transparency if they want to tap into the trillions of dollars and 90 million investors in employer-sponsored retirement plans. Jason Kephart, an analyst at Morningstar, said the fees for some alternative investments aren't clearly spelled out, some even have to be deciphered from footnotes. They "might be even underrepresenting the actual cost to the end investor, and I have a hard time seeing how plan sponsors are going to get comfortable with that," he said. "I think there is going to be more light shed on all these fees and exactly where they are and make it transparent." Under the current system, investors can also monitor fluctuations in their portfolio's performance on a daily basis and understand precisely what is contributing to those results, Hanson said. That won't be so easy for investments that aren't traded on open exchanges. "Private equity, private assets are the opposite," said Allvue's Hanson. "You're asking systems designed for daily trades to support illiquid and sometimes manually priced assets. There's a fundamental mismatch there.' That creates an obligation on the part of asset managers and plan sponsors to increase their outreach and education efforts, suggests Cerulli's Bailey. A typical retirement fund investor "is not sitting there thinking about optimizing their portfolio" and considering the impact of adding private assets to the mix on their risk or potential return, he said. Blackstone President and Chief Operating Officer Jon Gray recently told analysts that private assets are more appropriate for younger investors that have a longer investing horizon than for someone nearing retirement. One test case for the legal risks of putting retirement nest eggs in private markets has played out at chipmaker Intel, where employees brought a lawsuit over two retirement plans that included investments in hedge funds, private equity and commodities. An appeals court finally dismissed the complaint after seven years of court battles this year but lawyers at Debevoise & Plimpton said that asset managers and plan sponsors generally don't have the resources to manage multi-year litigation. Regulators will have to give the industry some legal protection from investor lawsuits to make good on Trump's plan, they said. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
8 hours ago
- Business
- Reuters
Trump's 401(k) order offers retirement savers crypto, private assets, but also higher fees and more risk
NEW YORK, Aug 10 (Reuters) - The new White House order directing regulators to expand access to alternative investments in 401(k) plans, like crypto or privately owned companies adds a new layer of risk to the retirement portfolios for ordinary investors that they may not fully understand, investment professionals say. "This is brand new; none of it has been stress-tested yet" in a market shock or long-term selloff, said Christopher Bailey, director of retirement, at Cerulli Associates, an asset management research firm. "There are liquidity concerns, issues around fees, among others." While industry advocates and the Trump administration say investments in private equity, crypto or privately held companies like ChatGPT developer OpenAI or Elon Musk's SpaceX hold the promise of greater returns, critics say the investments are inherently riskier, lack the same disclosures and carry higher fees than traditional retirement plans. "I don't think people are talking enough about the potential for higher fees," said Philitsa Hanson, head of product, equity and fund administration, Allvue Systems, a software and solutions provider for private asset managers. The executive order, she said, "raises more questions than answers. Someone will need to be very thoughtful about how these types of assets can be incorporated" into 401(k) plans. Private equity and other alternative asset funds have increasingly been raising capital from wealthy individuals but are traditionally designed for institutional investors and typically include layers of fees. Private equity, for instance, has long had the "2 and 20" structure: managers collect a 2% overall fee, as well as 20% of any gains. In contrast, the mutual funds that today make up the lion's share of 401(k) plan assets offer fees that average a mere 0.26%, according to the Investment Company Institute. Dmitriy Katsnelson, deputy chief investment officer at Wealthspire Advisors, which manages $30 billion for affluent and high net worth individuals and families, notes that if the executive order triggers a rapid and significant change in the menu of investment plans open to investors, that would reverse the trend of the last few decades. "It's been all about cutting fees, doing no harm," Katsnelson said. "It's going to take a while for people to come up with a framework to make this work and think about the risks." Alternative asset managers will likely need to come up with new products with lower fees, greater liquidity and more transparency if they want to tap into the trillions of dollars and 90 million investors in employer-sponsored retirement plans. Jason Kephart, an analyst at Morningstar, said the fees for some alternative investments aren't clearly spelled out, some even have to be deciphered from footnotes. They "might be even underrepresenting the actual cost to the end investor, and I have a hard time seeing how plan sponsors are going to get comfortable with that," he said. "I think there is going to be more light shed on all these fees and exactly where they are and make it transparent." Under the current system, investors can also monitor fluctuations in their portfolio's performance on a daily basis and understand precisely what is contributing to those results, Hanson said. That won't be so easy for investments that aren't traded on open exchanges. "Private equity, private assets are the opposite," said Allvue's Hanson. "You're asking systems designed for daily trades to support illiquid and sometimes manually priced assets. There's a fundamental mismatch there.' That creates an obligation on the part of asset managers and plan sponsors to increase their outreach and education efforts, suggests Cerulli's Bailey. A typical retirement fund investor "is not sitting there thinking about optimizing their portfolio" and considering the impact of adding private assets to the mix on their risk or potential return, he said. Blackstone President and Chief Operating Officer Jon Gray recently told analysts that private assets are more appropriate for younger investors that have a longer investing horizon than for someone nearing retirement. One test case for the legal risks of putting retirement nest eggs in private markets has played out at chipmaker Intel (INTC.O), opens new tab, where employees brought a lawsuit over two retirement plans that included investments in hedge funds, private equity and commodities. An appeals court finally dismissed the complaint after seven years of court battles this year but lawyers at Debevoise & Plimpton said that asset managers and plan sponsors generally don't have the resources to manage multi-year litigation. Regulators will have to give the industry some legal protection from investor lawsuits to make good on Trump's plan, they said.
NBC News
6 days ago
- Business
- NBC News
New guide to wealth terminology aims to better inform investors
A leading advisory group to the wealth management industry has launched a crowdsourced list of wealth terms it hopes will reduce confusion and marketing hype. The Ultra High Net Worth Institute, a nonprofit focused on improving services to wealthy families and investors, recently unveiled its ' Wealthesaurus ' — a list of over 80 terms commonly used and abused in the wealth management business. The list, which will be continually updated and expanded based on input from wealthy investors and advisors, aims to define the new language of wealth management and create accepted standards for communicating with clients. 'There are a lot of garbage terms, a lot of marketing terms being tossed around,' said Jim Grubman, content and curriculum chair at the Ultra High Net Worth Institute and the founder of Family Wealth Consulting. 'The motivation on a lot of this is to counteract some of the BS in the field.' The need for a credible wealth Wikipedia follows an explosion of gimmicks, false labels and misleading hype in the business of managing the fortunes of the wealthy. In 2024, households worth $5 million or more controlled an estimated $49 trillion in financial wealth, more than half of the nation's total, according to Cerulli Associates. With assets growing fastest at the top of the wealth ladder, the competition for ultra-wealthy investors and family offices has grown fierce among private banks, wirehouses, registered investment advisors, private equity firms and boutiques. With that growth has come a barrage of inflated brand language. Terms like 'family office services,' 'holistic advice' and 'assets under advisement' are used indiscriminately, making it harder than ever for clients to navigate an industry already impenetrable for nonfinancial experts. One of the most egregious violations is the term 'multifamily office.' Traditionally, a multifamily office is a single family office that's expanded to serve a small number of outside families or family members. Today, dozens of RIAs, boutique managers and even large advisory firms call themselves multifamily offices, trading off the exclusivity and bespoke services implied by a true family office. 'Some industry observers believe the term has no established basis and should never be used,' according to the Wealthesaurus entry for multifamily office. 'Most professionals simply recognize that the term has had growing recognition over the past thirty years, even if there is inadequate validity or consistency in its use.' To comply with the Wealthesaurus definition, multifamily offices need four specific attributes, from certain clients (at least 10 complex, multigenerational families with a median net worth of at least $30 million) to specific services, service delivery (no conflicts of interest) and experience. Another contentious term is 'assets under advisement.' Firms often toss around asset terms to appear to manage more client money than they actually do. Some firms use 'assets under management (AUM),' while others say 'assets under advisement (AUA)' and others tout 'assets under administration (AUAdmin).' Clients rarely know the difference. The Wealthesaurus gives highly specific definitions of each, with the focus for assets under advisement being firms that serve as fiduciaries (another debated term). It says clients should ask wealth managers specifically how they break out assets under management and assets under advisement. 'Some firms include AUM in their calculation of AUA without making it clear they are doing so, while others report AUM and AUA separately,' according to the Wealthesaurus. 'To address this problem if these amounts are being evaluated, firms should be asked to explain how they calculate their AUA.' Grubman said the idea for the Wealthesaurus started with an unexpected problem at the Ultra High Net Worth Institute. The Institute was founded in 2019 by Steve Prostano, a longtime advisory to wealthy families and private business owners, who felt that clients needed unbiased help understanding and navigating the industry. The Institute, which counts the leaders of dozens of top wealth management firms, advisory firms and specialists on its boards, also aims to promote best practices and standards in the industry. Two years ago, the Institute started developing what it calls the Integrated Family Wealth Management Initiative, looking at the sweeping changes in the industry in recent years and how it could better serve clients. The group's discussions hit a problem: They often couldn't agree on certain words. 'We would use a term and someone would say 'Um, actually I think it's this,'' Grubman said. 'And someone else would say 'I remember from 15 years ago it was defined like that.' It was amazing the differences people had, even around words like family enterprise.' Grubman and Tara Kehoe, the Institute's library manager, started compiling an internal glossary and crowdsourced definitions with members of the group. Over time, the list grew and they decided to create a public version to better help clients and firms. They considered calling it Wealthipedia, but the name was taken so they arrived at Wealthesaurus and added a dinosaur mascot. Grubman said the Institute welcomes suggested terms and definitions from other wealth management experts and clients in hopes of expanding its use. Kehoe said engagement has been high — with new users spending an average of over seven minutes on the recently launched site. 'They're clicking from term to term and really using the resource,' Kehoe said. The site doesn't aspire to be a comprehensive guide to all wealth management terms. There are no explainers on GRATS, or FLiPs or SCINS from the estate planning world, or SMAs and PPVAs in investing, or the myriad other products that make wealthy investors' heads spin. Grubman said the Institute didn't want to include products or terms that investors could easily look up on the web. For those kinds of product terms, the Wealthesaurus website includes links to a variety of online investing guides, including the Charles Schwab Investing Glossary and Investopedia and the SEC Glossary. 'We looked for terms that were important to the field, or where the other definitions out there were so full of jargon,' Grubman said. 'Wading through the definition of assets under advisement on the SEC website is a nightmare, for instance. So we wanted to create this for clients.' As the business of advising wealthy families increasingly cuts across industries — from trust and estate planners to accountants, real estate advisors, philanthropy consultants, aviation and fleet experts, and even concierge doctors and other specialists — the Wealthesaurus can also be a bridge between disciplines. The Wealthesaurus even has a defined term for 'ultra high net worth,' a phrase used throughout the luxury and banking worlds with little context. The Wealthesaurus says the most common definition of 'high net worth' is a client with between $5 million and $30 million. 'Ultra high net worth' typically means $30 million or more. It cautioned, however, that 'with inflation and the significant expansion of global wealth since 2000, more firms are considering the modern threshold to the top UHNW level to be $100 million.'
CNBC
6 days ago
- Business
- CNBC
How to create an ETF investment strategy. You'll need it when markets get ‘crazy,' advisor says
Investors have been piling more money into exchange-traded funds. ETF assets topped $10 trillion for the first time in November, according to Cerulli Associates, and as of June, now total $13.74 trillion, Hightower Advisors found. Just as with other investments, it's smart to have a strategy for ETF purchases, experts say. Similar to mutual funds, an exchange-traded fund is a basket of securities that closely track a broad index. Part of ETFs' attraction for new investors is lower associated costs and tax advantages, said Gloria Garcia Cisneros, a certified financial planner at LourdMurray, an investment and wealth management firm. "The best thing about the ETF is that it's not like old school mutual funds," said Garcia Cisneros. They also offer more flexibility. For instance, ETFs can be bought and sold throughout the day and during extended hours. Mutual funds can only be traded once a day after the market closes. "ETFs have made it a lot easier," Garcia Cisneros said. Here's a look at other stories offering insight on ETFs for investors. Despite that flexibility, it's important to approach ETF investing with a strategy, or a plan that guides your investments, said Lee Baker, a certified financial planner as well as the founder, owner and president of Claris Financial Advisors in Atlanta. Having a plan gives you something to stick to when "things inevitably get a little crazy," said Baker, a member of CNBC's Financial Advisor Council. Here are two things to consider when you're coming up with a plan. Everyday investors may want to avoid buying close to the U.S. stock market opening and closing hours, or 9:30 a.m. ET and 4 p.m. ET, said Baker. Prices are typically the most volatile during those points of the day. The hours in the middle of day, or between 10 a.m. ET to 2 p.m. ET, are "less frothy," he said. However, Garcia Cisneros said that you also want to avoid "timing the market," or making trades based on predictions about price movements. Not only is it difficult to do, but there isn't much of a payoff. In a new study by Charles Schwab that compared the performance of five hypothetical long-term investors with different strategies, the "perfect market timer" had just slightly better results than someone who simply invested their cash at the start of every year. "Because timing the market perfectly is nearly impossible, the best strategy for most of us is to not try to market-time at all," the report noted. Instead, investors can try "dollar-cost averaging," a strategy that requires investing a certain amount of cash over regular intervals. One way to buy ETFs is by placing "limit orders," which give you more control in your investment, experts say. A limit order is an order to buy or sell a security at a specific price or better, according to the U.S. Securities and Exchange Commission's A buy limit order can only be executed at the price you set or lower, and vice versa with a sell limit order. It allows you to say, "I only want to buy this ETF if it drops to $50," and not the current trading price, Garcia Cisneros said. For example, if you want to buy multiple shares of a particular ETF, a limit order can help protect your exposure in case there's a lot of volatility happening with that fund, Baker said. However, you're practically relying on a prediction on what the market will do, which can be difficult, said Garcia Cisneros. "It's like if you're waiting for a bag to go on sale to buy it, you might be waiting forever," she said. "I would hate to see if they wait forever and don't actually put any money to work."
