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Investment Products Trends - US - March 2010

The financial crisis took a heavy toll on the financial industry, as well as individual investors. As a result of the turmoil, companies are scrambling to develop new products to meet new needs and new expectations, and working hard to earn back the trust that was lost.

Now that the economy is beginning to show signs of strength, investors are returning. However, the lessons of the crisis remain and there are increasing government regulations. Investors are more thorough in their research and investment decisions and they are more demanding of information from investment companies before they commit. Both vendor and customer have been changed by the events of the past couple of years and it is evident in the trends running through the industry.

These themes are reflected in this report including discussions about:

  • How the changing economy is affecting the patterns of investment in different products
  • How investor expectations are changing and how companies need to develop products that will meet those needs
  • Regulatory changes – how the government is focusing heavily on watching over Wall Street and its products, and how the industry will look for ways to accommodate it

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Table of contents

  1. Scope and Themes

    • What you need to know
      • Data sources
        • Consumer survey data
          • Advertising Creative
            • Abbreviations and terms
              • Terms
                • Companies mentioned in this report:
                • Executive Summary

                  • Industry overview
                    • The economy is better and investors are coming back
                      • ETFs are growing in popularity, posing challenges to the mutual fund industry
                        • The government is becoming involved
                          • The Baby Boomers are retiring and need income distribution plans
                            • Competition is driving companies to be more creative in attracting accounts
                            • Insights and Opportunities

                              • Key points
                                • Green investment products are becoming increasingly attractive
                                  • Hispanics could be the next big 401(k) market
                                    • Figure 1: Percentage of industry workforce, by race/Hispanic origin, 2006
                                    • Figure 2: 401(k) participation, by race/Hispanic origin, spring 2009
                                • Inspire Insights

                                    • The Millennials are different
                                      • Rebuilding Trust
                                        • Over-optioned Consumers
                                        • Market Size and Forecast

                                          • Key points
                                            • Assets in funds continue to rise
                                              • Figure 3: Total net assets, by type of fund (billions of $, year-end 1995-2008)
                                          • Competitive Context

                                            • Key points
                                              • Consolidation is more prevalent than ever
                                                • New regulations will make 529 plans more competitive across state lines
                                                  • The ETF business has grown and is of increasing interest to advisors
                                                    • Figure 4: RIA plans for investing, by vehicle, September 2009
                                                  • Why are ETFs becoming popular?
                                                  • Segment Performance

                                                    • Key points
                                                      • ETFs
                                                        • Largest ETF providers
                                                          • Figure 5: Ten largest ETF providers by assets, January 2009, January 2010
                                                          • Figure 6: ETF/ETN categories by assets, January 2009 and January 2010
                                                        • It’s about pricing
                                                          • Retirement products
                                                            • Figure 7: Retirement assets, by product, 2000-08 (trillions $, percentage of total)
                                                            • Figure 8: Households’ willingness to take risks, 2008-09
                                                          • 401(k)s
                                                            • Figure 9: 401(k) account balances (a) among 401(k) participants, 2003 through2008
                                                          • The match is coming back….
                                                            • But it will not be quite the same
                                                              • New regulations on the horizon
                                                                • ETFs in 401(k)s
                                                                  • IRAs
                                                                    • Figure 10: IRA assets, by product, 1990-2Q 2009
                                                                  • The Obama administration’s support
                                                                    • Retirement income products
                                                                      • Mutual funds
                                                                        • Size of the mutual fund market
                                                                          • Figure 11: Percentage of U.S. households owning mutual funds, 2000-09
                                                                          • Figure 12: Millions of individual U.S. investors owning mutual funds, 2000-09
                                                                          • Figure 13: Breakdown of U.S. mutual fund assets, year-end 2008
                                                                          • Figure 14: U.S. mutual fund market, 2000-08
                                                                          • Figure 15: Inflows to retail money market funds, 1998-2008
                                                                          • Figure 16: Inflows to institutional money market funds, 1998-2008
                                                                          • Figure 17: Total assets of U.S. mutual fund industry by investment category, year-end 2000-year-end 2008
                                                                        • Number of mutual funds
                                                                          • Figure 18: DC plan sponsors initiating and terminating plans, 2000 through 2008
                                                                          • Figure 19: Number of funds in U.S. mutual fund industry, by fund type, year-end 2000 through 2008
                                                                          • Figure 20: Number of mutual funds opened and liquidated, 2000 through 2008
                                                                        • Trends in mutual fund investment
                                                                          • Figure 21: Total net assets of mutual funds, Dec 2008-Dec 2009
                                                                          • Figure 22: Net new cash flow of long-term funds, 2008-Dec 2009
                                                                        • Trends in mutual fund fees and expenses
                                                                          • Figure 23: Fees and expenses on stock funds, percentage of total investment dollars, 2000-08
                                                                          • Figure 24: Fees and expenses on bond funds, percentage of total investment dollars, 2000-08
                                                                        • Reasons for the decline in fees and expenses
                                                                          • 529 plans
                                                                            • Lower fees
                                                                              • Asset growth
                                                                                • Figure 25: Projected asset growth of college savings, 2008-14
                                                                              • 529 enhancements
                                                                                • Figure 26: Expected enhancements to 529 plans, January 2010
                                                                              • Challenges to 529 growth
                                                                                • Proposed regulatory changes to 529s
                                                                                  • Hedge funds
                                                                                    • 2009 was a better than expected year
                                                                                        • Figure 27: Hedge fund sector performance returns, 2008-09
                                                                                      • Size of hedge fund market
                                                                                        • Figure 28: Estimated assets under management, ($ billion) as of June 2008
                                                                                      • Number of hedge funds
                                                                                        • Funds harder to start up
                                                                                          • Transparency and risk management have increased in importance
                                                                                            • The future of the hedge fund industry
                                                                                              • Proposed hedge fund legislation
                                                                                              • Retail Investment Trends

                                                                                                • Key points
                                                                                                  • 401(k) investing habits stayed stable in 2008…
                                                                                                    • … but the tide might be turning
                                                                                                      • Green investing is big business
                                                                                                        • HNWIs are especially interested
                                                                                                          • Americans in general believe that opportunities to help the environment will revive the economy
                                                                                                            • Contrary to the myth, green investing can pay
                                                                                                            • Market Drivers

                                                                                                              • Key points
                                                                                                                • Some people are feeling better but some aren’t
                                                                                                                  • Unemployment remains a challenge
                                                                                                                    • Figure 29: Unemployment rate, 2000-10
                                                                                                                  • Inflation
                                                                                                                    • Figure 30: Percentage changes in CPI for All Urban Consumers (CPI-U): U.S. city, average; seasonally adjusted changes from preceding month, June 2009-December 2009
                                                                                                                  • The U.S. population is growing older
                                                                                                                    • Figure 31: U.S. population projections 2000-50
                                                                                                                • Leading Companies

                                                                                                                  • Key point
                                                                                                                    • Charles Schwab and Vanguard have surpassed Fidelity in mutual fund market share
                                                                                                                    • Innovation and Innovators

                                                                                                                      • Key points
                                                                                                                        • BlackRock
                                                                                                                          • Lord Abbett
                                                                                                                            • MetLife/Fidelity
                                                                                                                              • TDAmeritrade
                                                                                                                                • Morgan Stanley Smith Barney
                                                                                                                                  • Figure 32: Morgan Stanley Smith Barney’s Wealth Advisor Focus Opportunities, September 2009
                                                                                                                                • Goldman Sachs
                                                                                                                                  • Figure 33: Goldman Sachs, company overview brochure, October 2009
                                                                                                                                • Putnam
                                                                                                                                • Advertising and Promotion

                                                                                                                                  • Key points
                                                                                                                                    • Overview
                                                                                                                                      • Email vs. direct mail
                                                                                                                                        • Pricing is paramount
                                                                                                                                          • Figure 34: Vanguard Lower Fee ad, August 2009
                                                                                                                                        • Convenient investing through technology
                                                                                                                                          • Figure 35: E*Trade, May, 2009
                                                                                                                                        • Companies are still using image advertising to (re)build trust
                                                                                                                                          • Figure 36: Franklin Templeton Funds, May 2009
                                                                                                                                          • Figure 37: Wells Fargo, October 2009
                                                                                                                                        • Non-investment financial product companies are advertising, too
                                                                                                                                          • Figure 38: Marketwatch.com, May 2009
                                                                                                                                        • Innovative incentives
                                                                                                                                          • TDAmeritrade
                                                                                                                                            • Figure 39: TD Ameritrade email ad, October 2009
                                                                                                                                          • UPromise
                                                                                                                                            • Figure 40: UPromise email ad, June 2009
                                                                                                                                          • ING Direct
                                                                                                                                            • Figure 41: ING Direct email ad, May 2009
                                                                                                                                          • IRAs
                                                                                                                                            • ING Direct
                                                                                                                                              • Figure 42: ING Direct email ad, December 2009
                                                                                                                                            • Fidelity
                                                                                                                                              • Figure 43: Fidelity direct mail ad, November 2009
                                                                                                                                            • ETFs
                                                                                                                                              • State Street Global Advisors
                                                                                                                                                • Figure 44: SSgA direct mail ad, December 2009
                                                                                                                                                • Figure 45: SSgA informational email, November 2009
                                                                                                                                                • Figure 46: SSgA email ad, October 2009
                                                                                                                                              • Charles Schwab
                                                                                                                                                • Figure 47: Charles Schwab Television ad, November 2010
                                                                                                                                              • 529 plans
                                                                                                                                                • Fidelity
                                                                                                                                                  • Figure 48: Fidelity email ad, May 2009
                                                                                                                                                • Charles Schwab
                                                                                                                                                  • Figure 49: Charles Schwab email/newsletter ad, May 2009
                                                                                                                                                • BlackRock
                                                                                                                                                  • Figure 50: Blackrock email ad, December 2009
                                                                                                                                                • Direct mail
                                                                                                                                                  • Advisors Asset Management
                                                                                                                                                    • Figure 51: Advisors Asset Management newsletter, December 2009
                                                                                                                                                • The Consumer

                                                                                                                                                  • Key points
                                                                                                                                                    • Investments outside of savings account
                                                                                                                                                      • Figure 52: Have investments outside a savings account, by gender, December 2009
                                                                                                                                                      • Figure 53: Have investments outside a savings account, by race/ethnicity, December 2009
                                                                                                                                                      • Figure 54: Have investments outside a savings account, by level of education, December 2009
                                                                                                                                                      • Figure 55: Have investments outside a savings account, by household income, December 2009
                                                                                                                                                      • Figure 56: Have investments outside a savings account, by gender and household income, December 2009
                                                                                                                                                    • Size of portfolio
                                                                                                                                                        • Figure 57: Size of portfolio, by age, December 2009
                                                                                                                                                      • Product ownership
                                                                                                                                                          • Figure 58: Product ownership, by gender, December 2009
                                                                                                                                                          • Figure 59: Product ownership, by age, December 2009
                                                                                                                                                          • Figure 60: Product ownership, by household income, December 2009
                                                                                                                                                          • Figure 61: Product ownership, by gender and household income, December 2009
                                                                                                                                                        • Portfolio changes in the 2009
                                                                                                                                                          • Figure 62: Decrease in investment exposure by product, by gender, December 2009
                                                                                                                                                          • Figure 63: Change in investment strategy in last year, by gender, December 2009
                                                                                                                                                          • Figure 64: Change in investment strategy in last year, by age, December 2009
                                                                                                                                                        • Interest in financial topics and investment decision-making
                                                                                                                                                            • Figure 65: Interest in financial topics and investment decision-making, by gender, December 2009
                                                                                                                                                            • Figure 66: Interest in financial topics and investment decision-making, by age, December 2009
                                                                                                                                                            • Figure 67: Interest in financial topics and investment decision-making, by gender and age, December 2009
                                                                                                                                                        • Cluster Analysis

                                                                                                                                                            • Key points
                                                                                                                                                              • Seekers
                                                                                                                                                                • Independents
                                                                                                                                                                  • Tycoons
                                                                                                                                                                    • Cluster characteristics
                                                                                                                                                                      • Figure 68: Investment product trend clusters, December 2009
                                                                                                                                                                      • Figure 69: Total value of investment portfolio, by investment product trend clusters, December 2009
                                                                                                                                                                      • Figure 70: Types of investments previously or currently owned, by investment product trend clusters, December 2009
                                                                                                                                                                      • Figure 71: Types of investments previously owned, by investment product trend clusters, December 2009
                                                                                                                                                                      • Figure 72: Types of investments never owned, by investment product trend clusters, December 2009
                                                                                                                                                                      • Figure 73: Attitudes towards investing, by investment product trend clusters, December 2009
                                                                                                                                                                    • Cluster demographics
                                                                                                                                                                      • Figure 74: Investment product trend clusters, by gender, December 2009
                                                                                                                                                                      • Figure 75: Investment product trend clusters, by age group, December 2009
                                                                                                                                                                      • Figure 76: Investment product trend clusters, by income group, December 2009
                                                                                                                                                                      • Figure 77: Investment product trend clusters, by race, December 2009
                                                                                                                                                                      • Figure 78: Investment product trend clusters, by Hispanic origin, December 2009
                                                                                                                                                                    • Cluster methodology
                                                                                                                                                                    • Appendix: Simmons Cohort Analysis

                                                                                                                                                                      • Key points
                                                                                                                                                                          • Figure 79: Trends in product ownership, June 2002-June 2009
                                                                                                                                                                          • Figure 80: Trends in product ownership, by product, June 2002-June 2009
                                                                                                                                                                          • Figure 81: Average value of investment portfolio, June 2002-June 2009
                                                                                                                                                                          • Figure 82: Type of investment products owned, by gender, Spring 2009
                                                                                                                                                                          • Figure 83: Have mutual fund/brokerage accounts with selected companies, by age, spring 2009
                                                                                                                                                                          • Figure 84: Have primary mutual fund/brokerage accounts with selected companies, by age, spring 2009
                                                                                                                                                                      • Appendix: Trade Associations

                                                                                                                                                                        Companies Covered

                                                                                                                                                                        • American Association of Retired Persons (AARP)
                                                                                                                                                                        • American Council Of Life Insurers
                                                                                                                                                                        • Bank of America Corporation
                                                                                                                                                                        • BlackRock, Inc.
                                                                                                                                                                        • Facebook, Inc.
                                                                                                                                                                        • Financial Industry Regulatory Authority (FINRA)
                                                                                                                                                                        • Goldman Sachs Group, Inc., The
                                                                                                                                                                        • Greenfield Online
                                                                                                                                                                        • Hewitt Associates
                                                                                                                                                                        • Investment Company Institute
                                                                                                                                                                        • Investment Management Association
                                                                                                                                                                        • JPMorgan Chase & Co
                                                                                                                                                                        • Lehman Brothers Holdings Inc.
                                                                                                                                                                        • Merrill Lynch & Co. Inc
                                                                                                                                                                        • Morgan Stanley
                                                                                                                                                                        • Prudential Financial, Inc
                                                                                                                                                                        • TD Ameritrade Holding Corporation
                                                                                                                                                                        • The American Bankers Association
                                                                                                                                                                        • The Financial Services Roundtable
                                                                                                                                                                        • U.S. Bureau of Labor Statistics
                                                                                                                                                                        • U.S. Securities and Exchange Commission
                                                                                                                                                                        • US Department of Labor
                                                                                                                                                                        • Watson Wyatt & Company Holdings
                                                                                                                                                                        • Wells Fargo & Company

                                                                                                                                                                        Investment Products Trends - US - March 2010

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