The Hire thru Retire Podcast

Designing Investment Menus with Rick Unser

• Voya Financial • Episode 24

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In this episode Bill and Heather are joined by someone who needs little introduction when it comes to podcasting and that is none other than Rick Unser. Rick is a partner and managing director with Lockton Retirement Services, an offering of Creative Planning, but where you might hear him most, host of the podcast “401(k) Fridays.” Rick joins Bill and Heather to talk about the latest and greatest in investment menu design in retirement plans. Tune in to hear more about the broad trends he’s seen around investment menu design in recent years.

 

Bill Harmon is a registered representative of Voya Financial Partners, LLC (member SIPC).

 

Rick Unser is a partner and managing director with Lockton Retirement Services, an offering of Creative Planning. Creative Planning is a Registered Investment Advisory firm that manages more than $100 Billion in assets and serves clients in all 50 states.  

 

Lockton Retirement Services and Creative Planning are separate entities and not corporate affiliates of Voya Financial®

 

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Speaker 1:

You're listening to hire through retire, a health and wealth podcast with FOYA leaders, bill Harmon, and Heather LA valley tackling all things from 401ks to HSAs and everything in between. We're talking to the best and brightest in the industry to bring you the latest in health, wealth, and investment trends in the workplace. Come along with us on our journey to help all Americans well planned, well invested and well protected.

Speaker 2:

Welcome back to hire through retire, a health and wealth podcast. I'm here today, again with my friend colleague and co-host bill Harmon, bill. Great to see you on a Friday afternoon.

Speaker 3:

Hey, it's great to see you too, Heather, and I'm also happy to be here and be here with everyone today. You know, it's been an exciting time, Kate off this podcast, and we're especially excited when it brings us together with some really insightful thought leaders. And I say that today, as we're bringing on an expert in his own, right, when it comes to podcasting and that's none other than Rick Unser, the man who really needs little introduction is Rick is a Jack of all trades as a frequent contributor to Forbes where he is focusing on 401k and workplace retirement plan time. And he's a partner in managing director with locked in retirement services, an offering of creative planning and where you might hear him most is when he's the host of the podcast, 401k Fridays, it's safe to say he's a wealth of knowledge and we're so appreciative to have him here today. So Rick, thanks for joining us today.

Speaker 4:

Absolutely bill happy to be here.

Speaker 3:

So tell me, you know, uh, and, and I've been on your podcast. It's fantastic, but how does it feel to be on the other side of the microphone?

Speaker 4:

You know, it's, it's always fun to take a little turn on my podcast. I really try to let the experts do all the talking and learn as much as I can from them. So, Hey, I guess it's, uh, I guess it's fun to maybe do some, some talking on my own, so it's always fun to have the opportunity

Speaker 3:

Well, and you are the expert this time. And so we're really looking forward to learn more. You've got this incredible resume where you've really made a home for yourself in the retirement industry. And I tease them that so many of the retirement professionals, they did not major in that in college. You know, it's something that they sort of just evolved into. So if you could tell us a little bit of how did you get start and, you know, did you ever imagine that she'd lead this multifaceted career that you have today?

Speaker 4:

No. As a, as a history and foreign affairs major in college, this wasn't quite exactly how I saw things playing out, but Hey, you meet somebody at a fraternity party and they offer you an internship in New York and voila things changed. So it was a kind of a, a windy road to get 401k, but it all kind of started with me as an advisor and then branched off from there to start selling 5 29 plans at a corporate level, and then realized that, Hey, maybe 401k is, uh, a little bit more, uh, is a little more to that and a little bit more appetite. So for the last 20 years or so, I've been, uh, been doing the whole 401k thing.

Speaker 2:

Well, Rick, we're so glad that the winding road of life has taken you here with us today to share some great insight. Let me just jump right into today's topic and something, our audience will have some interest in and that's investment menu designs in retirement plans. We know the broad world of retirement plans have changed even before COVID came into the picture. So what can you tell us about the broad trends you've seen around investment menu design in recent years?

Speaker 4:

So I think the first thing is investment. The number of choices have really been declining and, and I think that's been for a lot of reasons. I think probably simply a lot of fiduciaries are playing sponsors, just kinda look at their menus and go, man, do we really need all these choices? Or it doesn't seem like we have a lot of money in some of these. So let's just kind of clean this up and bring the number of choices down. So, so that's certainly been a big trend. Obviously the move to passive has been pretty overwhelming. I think there's a lot of different reasons for that, but certainly that's been a made your trend that we've seen in the industry. And then really the last one has been target date funds. Uh, ever since the pension protection act came out, target date funds have really taken over the 401k landscape. And, you know, I don't know about you guys, but certainly we have plans and we see plans where 90 plus percent of the assets in the plans sit in target date funds. I don't think that's a bad thing, but it's certainly been obviously a major trend within, within the 401k investment menu design conversation.

Speaker 3:

And it really does kind of explain, you know, certain moods or maybe it could even be fears about asset allocation and, and participants kind of designing their own asset allocation. So they would go to something more automated, like target date funds. And really, if you think about we, what we're dealing with right now, there's tremendous market volatility. January was a crazy month. And just throughout our careers, we've seen some volatile times and oftentimes we've seen participant behavior where all of a sudden it's a really, uh, strong equity market. And then they start to chase that maybe at the wrong time or all of a sudden they feel some volatile and they chase that maybe at the wrong time. So I guess what advice would you have when it comes to maybe by the changing market or changing economy? What should people be thinking about? And related to that, I mean, what are common concerns or points or resistance you hear from employees or plan sponsors when it comes to making changes to their investment menus?

Speaker 4:

Yeah, I think we're headed for a really interesting year. Uh, we're starting to see some things that I, I feel like people have been talking about for a little while, but now we're really starting to, to kind of show their themselves in the market. On my podcast, I've talked to a lot of folks and that are experts in the economy and in the markets certainly, you know, a heck of a lot smarter than I am. So the one thing that I've kind of taken away from them is we're likely heading into more of a low return environment in the next five to 10 years. Certainly as we come off the recovery from the global financial crisis back in oh eight, and, you know, obviously we had a little bear market in reaction to COVID after that it's been a tremendous return in the stock market. And a lot of people are kind of, for many reasons just saying, Hey, I'm not so sure the next to five to 10 years are gonna look like the past five to 10 years. So keep that in mind, as you're thinking about the investments that you offer and, and how would your investment line up respond? If we're looking at more of a, a four to 5% real return versus 10% rates of return that we've seen over the past decade, rising rates, a lot of people have been calling for that. And now I feel like we're finally starting to get there. The Fed's gonna take action this year for the first time in a long time. And now we actually have this thing called inflation. So I feel like that, that, that bell has been ringing since the, some of the initial stimulus back in the globe financial crisis where people are like, oh my gosh, we can't just pump billions and billions of dollars into the market and not expect there to be inflation. Well, really, it went for a long time with Don and now all of a sudden with this latest round of stimulus and the trillions of dollars that went into the economy and many other reasons now we're actually seeing inflation. And what does that mean for your investment lineups and how does that from a participant standpoint, what options are they gonna have to choose from that might weather this kind of very different environment that we're likely to see in the next five to 10 years?

Speaker 2:

So, Rick, as we think about the current environment that you just kind of talked about is that we're coming off a couple years of some really, really strong returns expecting that there could be some, some moderation in that. And you're seeing, you know, folks looking for returns. What's your thoughts about alternatives and other types of investment vehicles inside retirement plans?

Speaker 4:

Great question. And obviously I can't predict the future just like any of us, but a as we start looking at the number of people that are kind of suggesting things are gonna be a little different in the future. I, I think it it's time to think a little differently in 401k plans. And I, if you really step back and you look at the investments that are in 401ks, most of them are gonna have an extremely high correlation to the S and P 500 on the equity side, or they're gonna have an extremely high correlation to the Barclays on the fixed income side, in a low return environment, we're saying pure equity investments or pure bond investments or cash investments are really not expected to, to return much on a real basis. What does that leave us with? Well, it actually, I think it leaves you with a lot, but they're not often represented in a lot of 401k lineups. So investments that are what we would call or what Morningstar would call kind of a multi-asset alternative strategy, very broad category, but that would incorporate investments that might be a little more tied to real estate or some inflation managed strategies. They might have currency or precious metals or other strategies they're not as correlated to the broader stock market. In a lot of those funds, they're kind of grouping 4, 5, 6, or more of those strategies together in one single investment where, you know, it might not make sense to have a gold fund in your, in your lineup or a utilities fund or whatever, but for some people that are maybe a little reticent to having those kind of specialty funds, that's one idea that, uh, I, I think again, in this kind of different environment, especially if this inflation persists, that could be a, an interesting convers station to have about adding to your investment lineup. Also on the bond side of things, a lot of people in their lineups, most of the bond funds are gonna be very tied to kind of intermediate high quality bonds in a rising rate environment that becomes tougher to, to really get a good, a good strong yield or rate of return for employees. So is it time to look outside of those kind of high quality intermediate term bonds? And it, that doesn't necessarily mean you have to add a, a junk bond fund or a high yield bond as an offering certainly might not be a bad strategy to consider, but there's, multi-sector bond strategies which have a lot of adversity to them. And depending upon the risk profile of the manager, they can really look for yield in a lot of different places and kind of go with best ideas. And then also emerging markets that I think that's an area that some people have gotten a little spooked with. Obviously it kind of goes in ups and downs, but again, as you're looking for kind of different return characteristics to just, again, core S and P 500 and a lot of correlation to that, or Barclays with a lot of correlation, there just a couple ideas to keep in mind that, uh, again, in a low return environment might offer some, some opportunities for participants to, to still achieve some positive returns.

Speaker 2:

So quick follow up to that, Rick. So for employers who want to, you know, revisit their investment lineup and maybe consider some of the things you've just talked about now, and, and a little bit earlier in our conversation, how do they start that process?

Speaker 4:

Well, I'm a big fan of taking inventory and just looking at what you have and making sure you, you have some way to sort of characterize or map those out in a way that it makes sense to either the, the advisor that you're working with or the plan sponsor or the committee themselves. And then as you go through that inventory, just have a quick conversation about, okay, if we're concerned that we're heading into a low return environment, or in we're concerned about inflation or whatever it might be, how are these investments, how would we expect them to perform now, again, we're not, well, this is what this one will get 7% and this one will get 2%. Well, no, that's a little, that's probably a little too specific, but just kind of thinking about the general dynamics of how an investment might perform in that type of environment. And if you come back from that conversation and go, Hmm, seems like we've got a lot of stuff that's gonna, that's gonna react very similarly. Then maybe it's time to have the conversation and look at some ideas that might provide you with some different risk can return characteristics, uh, that might have a different outcome in, in a market environment that doesn't look like what we're coming off of, uh, from the last decade.

Speaker 3:

So diversification is obviously important with, with what you just said, diversifying the fun lineup. So you don't have funds that react the same way in certain markets. When you're talking about an evolution of a lineup, and you're looking at some of these alternative investments, typically those investments were available to sort of kind of high net worth individuals. But if you put'em into a fund and diversify within that, now of a sudden you can really have some funds that can react appropriately to different trends in the marketplace. So if you have clients or plan sponsors that are thinking about adding new funds, one of the concerns is, well, how should I add this fund? Will anyone even use this fund? So now I just added sort of this empty fund. How do you address that?

Speaker 4:

Yeah. And I think you really have to sit back as a committee and think about how important is this to you and how strongly do you feel you want this message sort of sent or represented in people's investment portfolios and some committees, and this isn't wrong, just build to your point, let's add it. And we we'll give it to people as a tool, and if they want to use it, they can use it if they don't, then they don't. Uh, and I think that that's certainly one approach and that's, I'd say probably more on the, on the passive side of the world and not, not, you know, less involved, less forceful way to, to kind of have that diversity represented in your, in your investment lineup. But what we are starting to see now is certainly there's a lot of retirement plans, uh, out there that use investment models. So, Hey, uh, you might not know exactly how you wanna invest, but take this risk profile. And here's a, you know, conservative, moderate or aggressive model that you can use, or some variation of that start looking at whether or not you want to have those, those newly added funds, the funds that might offer a little more diversification, have those represented in the models in some way, shape or form, obviously work with, uh, you know, professional to do that. Also, another big trend that we're seeing in the market right now is managed accounts and their managed accounts are going through their own evolution and are such a tremendous tool for employees working with a managed account provider, whether that's an advisor managed account or a managed account by a more traditional provider, but making sure or communicating your desire that you'd want those types of investments represented where it makes sense within those managed advice or managed, uh, managed account services. And then I think kind of the third layer of this is, again, depending upon how strongly you feel target date funds, as we talked about are the, you know, the 10 ton gorilla in retirement plans right now, not all target date funds are created equal. And, and certainly there's some target date funds, which are gonna be very plain vanilla, you know, maybe they're passively managed and just kind of stick to the basics, but then there's other target date funds. Who've given a lot of thought to including non-traditional asset classes within their target date glide path. And if this is a conversation that resonates with you, then maybe it's time to look at your target date provider and who might have an approach that is a little more outs, a little more diversification, or has some of these, uh, you know, some of the concepts that you feel are important to have represented in your lineup, in your participants using in one shape or form

Speaker 2:

What you've shared with us today. And I'll maybe make a, uh, bad pun in the sense of what you've talked about is how an investment C and an employer can really lean in to actively manage their investment menus, not all about, you know, active versus passive, but really about this is something that folks need to, to be leaning into and doing on a regular basis and, and taking into consideration the kind of market conditions that they're faced. And, and as you said, the risk profile of, of that committee. So first, you know, just a, just a huge thank you for joining us today. And I, and I know our audience will, uh, will find this really valuable, just a couple closing questions for me, you know, as a fellow podcaster, you're a pro um, just outta curiosity, do you have a favorite episode of 401k Fridays and second, uh, which of your past guests has been the most surprising or unexpected and why?

Speaker 4:

Well, of course my favorite episodes is the ones with bill. I mean, that's that go? That goes without saying, um, you know, of course I think, I think probably some of my favorite episodes are, are the ones with the plaintiff's attorneys that I've talked to just because I think that that's, you know, so many people are kind of hanging on every outcome or every settlement that's coming out from the plaintiff's bar. Yeah. I've actually got one com the next one that I'm putting out on February 11th, uh, is this year's conversation with Jerry Schlicter and that has a lot of great sound bites in it. And some, some really good food for, with thought. And then I think we are probably the other one just on the flip side of the equation is we talked to, uh, American century right after they successfully defended their lawsuit against one of the plaintiff's attorneys. And that was a pro another, just really interesting one, but yeah, there's so many, I I've done a little over 200 now, so, you know, in a certain way, it's there, there's just so many to choose from, but, uh, just a lot of fun conversations and a lot of great information that I've learned and, and absorbed over the years, uh, which is what makes it fun

Speaker 2:

Though. We have a long way to go. Well, Rick, not

Speaker 3:

175, I think,

Speaker 2:

I think so. Well, Rick, thank you. Thank you again for joining us.

Speaker 3:

And I'm gonna echo what Heather said, Rick. It, it has been great to spend time with you again, I really appreciate your time. And I also wanna thank our listeners, and I remember to check Rick out on his own podcast, 401k Fridays, which is available in the same places you can find us. Thank you for joining us today and stay well.

Speaker 1:

This information is provided by Voya for your education. Only neither Voya NORS representatives, offer tax or legal advice. Any opinions express within do not necessarily reflect those of the Voya family of companies or its representatives, and are not intended to provide specific advice or recommendations for any individual. Please insult your tax legal advisor before making the tax related investment or insurance decisions. And.