A fresh approach to this classic strategy provides clients with low-risk security
by Kent BartellMr. Bartell is the director of investment research at The Standard. He has more than 25 years of experience in portfolio management and financial services. Kent holds Chartered Financial Analyst® and Associate of the Society of Actuaries designations. He graduated from the University of Michigan with a bachelor’s degree in mathematics and an MBA in finance. Visit www.standard.com
With each new year, trends will come and go, but we can be certain that the need for a balanced retirement plan will never fade. One retirement product that has remained a classic is the stable value fund. The product offers strong returns and guarantees in a low-risk environment, providing peace of mind to plan sponsors and their participants.
As you prepare to meet with clients, the key to delivering good service is to first determine the true financial goals of your clients and their employees, and then tailor the best options to meet those needs. For clients with employees who are craving more conservative investment vehicles to help protect their money for retirement, a stable value fund can be the ideal product. A stable value fund can provide plan participants with safety of principal, liquidity and a stable rate of return.
Whether you’ve recommended stable value funds in the past or it’s a newer product for you, the new year can be a good time to rethink your retirement planning sales strategy. Consider the following tips to approach the conversation with a fresh perspective:
Prepare for client meetings…
A first impression is priceless. You’ve been through the retirement plan conversation many times and you’ve potentially seen the glaze that comes over a client’s eyes when the details around offerings are communicated ineffectively. Take the time to think through popular questions from clients in the past or moments where you noticed clients getting confused.
… Then, build on it
Use that information to adjust your communication techniques. Perhaps you may need to use less industry jargon to sound more conversational; provide fewer investment offerings so the decision is not as overwhelming; or keep your messaging concise and straightforward to help maintain your client’s attention. This simple process can help you be more relatable and approachable from a client’s perspective. Not to mention, being prepared and able to answer clients’ questions will demonstrate your industry knowledge and level of preparedness — helping to build trust and confidence.
Demonstrate product expertise
After assessing your clients’ priorities and understanding their goals in supporting plan participants’ retirement readiness, make sure you’re prepared to discuss the ins and outs of the stable value fund offering. Many plan sponsors may be new to stable value funds, so it’s important to explain the product structure in a way that’s easily digestible.
Here’s a one-sentence overview: stable value funds are a relatively low-risk asset class that focus on capital preservation and liquidity, while providing steady, positive returns to participants within qualified and nonqualified retirement plans.
And, here’s how you can summarize the benefits: the product can offer participants the liquidity and principal-protection features of money market products, but with the higher yields that are comparable with intermediate-term bonds. This has been especially useful during the low-interest-rate environment of recent years. As a core investment product, stable value funds are offered in approximately half of all defined contribution plans, totaling more than $821 billion in assets.
Once your clients have a basic understanding of the product, dive deeper into plan design and investment offerings with these six benefits to showcase how stable value funds can assist plan participants with retirement readiness.
New statistics are released almost weekly that show the staggering number of Americans who lack comprehensive retirement savings. This includes large percentages of people who say they are at risk of not being able to cover basic or essential expenses in retirement. Stable value funds can offer plan participants peace of mind that, regardless of what’s happening in the marketplace, this investment vehicle offers a principal guarantee — helping to ensure participants’ hard-earned savings are safe. For plan participants with retirement on the horizon, this protection can be crucial.
Stable value funds focus on capital preservation and liquidity that provides steady, positive returns for participants. Plan sponsors will be pleased to learn that, regardless of what happens to the markets in 2018, plan participants will receive book value — principal and accrued interest — for their investments.
Stable value funds have historically offered attractive yields compared with their money market fund brethren. With recent regulation changes, money market funds are now forced to choose between having their investment options severely limited or being required to restrict participant transactions for up to 10 days during times of market stress. Furthermore, potential Securities and Exchange Commission (SEC) restrictions could make it even tougher for money market fund returns to keep up in the future.
In contrast, stable value fund contracts are issued by banks and insurance companies and are not subject to the SEC regulations. Because of this, stable value funds are able to ensure that participants receive book value on any transactions. The protection from the interest rate ebbs and flows is a unique feature all stable value funds offer, regardless of the invested asset performance.
Most stable value funds are fully portable and can be kept as an investment option in the event there is a change in recordkeeper. This feature gives plan sponsors and participants more flexibility and contractual freedom.
5. Guaranteed crediting rate
Depending on the carrier, a stable value fund’s crediting rate is typically contractually guaranteed for a specified period of time and known to participants in advance. The promise that the crediting rate will never fall below a stated minimum also can be an advantage for plan participants who have been hurt by the financial instability of the marketplace and want a predictable return on investment for their hard-earned savings. This guaranteed crediting rate can help garner more yield for participants who are able to invest in stable value funds longer-term, allowing their investments to gradually grow in a safe environment.
6. Underlying investments
Stable value funds have high-quality, well-diversified portfolios of fixed-income instruments. While these are not the highest-earning investments, this benefit is often appealing to risk-averse or soon-to-be retiring plan participants who want to have a rough estimate on their return on investment.
When possible, provide real-life examples to demonstrate how stable value funds can offer plan participants a safe and profitable investment vehicle for their hard-earned money. Often, clients will take comfort in hearing you speak from experience about how previous clients have benefited from adding this product to their plan offerings.
During this conversation, an important note to highlight is that during the 2008 economic crisis, stable value funds were among a select few retirement plan investments that garnered a positive return. For plan participants who sold at the market bottom and therefore may still be digging out from losses they incurred during the Great Recession, this investment security offer of stable value funds could be especially appealing.
By using your experience and product knowledge to communicate the options clearly, you can help clients make informed decisions they feel confident are in the best interest of their plan participants.
Anticipating that retirement readiness will continue to be an increasingly important concern among plan sponsors in 2018, it will be even more important to articulate the benefits of stable value funds and how the product can better prepare plan participants for retirement. With many people in our country facing an uncertain retirement, go into the new year with a refreshed focus on how best to meet the needs of your clients and their plan participants. ◊
1. Stable value fund at a glance, Stable Value Investment Association, Page 2, 2017, https://stablevalue.org/media/misc/Stable_Value_at_a_Glance.pdf