In today’s regulatory environment, it is important to find new ways to strengthen your fund selection process and integrate it into your practice. Staying ahead of industry changes, instead of reacting to them, can put you in a position to offer better solutions to your clients.
This means many advisors need to go deeper in interactions with clients, have a better understanding of their objectives, and implement a more rigorous process for selecting funds.
Voya’s Consistency Lens™ can help. This unique method is aimed at identifying actively managed funds that have delivered consistent excess returns with less volatility and is designed to complement your existing approach to constructing effective retirement investment strategies for clients.
If you’re like many advisors, the number of funds in your book of business has proliferated over the years. It may be prudent to review the funds in your lineup to determine if they’re optimal for personal retirement clients and participants in defined contribution plans.
It can be challenging to streamline your book since, among the thousands of mutual funds available, there is a huge variation between the returns of the best and worst funds in any category.
The Consistency Lens™ combines six returns-based factors that can be used to determine which fund managers have produced higher average excess returns and lower downside risk. As part of its development, Voya applied the Consistency Lens™ to a universe of ten Morningstar open-end mutual fund categories — seven equity and three fixed income — and found that the Consistency Lens™ dramatically narrowed the potential range of uncertainty over the entire measurement period.
Further, high rankings on the six factors were found to be correlated with high excess returns over a full 10-year historical period.
Request a custom Diagnostic Report now and share the funds you want to analyze, or reach out to your Voya Representative at (800) 334-3444 and share the funds you want to analyze using the Consistency Lens™ methodology.
In addition to rationalizing the funds in your lineup, it is important to demonstrate a rigorous, repeatable due diligence process for fund selection.
In any due diligence process, fund evaluations relying on historical returns can give a snapshot of performance at a particular point in time, but they can be a fragile indicator of future results. Generally, looking at historical performance over fixed 1-, 3-, and 5-year periods can’t tell you if a manager’s success is due to skill or mere luck or how a fund behaves when markets are going down.
There is recency bias in trailing returns which unduly overweight the most recent performance on a fund’s long term return history. Voya’s Consistency Lens™ relies on rolling 3-year returns rather than trailing returns. Over a ten-year period, trailing 1, 3, 5, and 10-year returns represent only four data points — all ending on the same date. Rolling periods advancing one month at a time include 85 data points all starting and ending on different dates —potentially a much clearer picture of whether the performance was due to skill or luck.
Request a custom Diagnostic Report now and use the Consistency Lens to review your “go-to” funds, Request a custom Diagnostic Report now and share the funds you want to analyze, or reach out to your Voya Representative at (800) 334-3444 and share the funds you want to analyze using the Consistency Lens™ methodology.
Over three quarters of advisors say their top concern is managing client expectations and fears.1 Hardly a surprise when uncertainty often leads clients to make decisions based on emotions rather than reason.
How can you decrease clients’ stress and manage client expectations more effectively? First, you’ll need to understand where clients are along their path toward retirement.
Voya’s Consistency Lens™ is not meant to be a one-size-fits-all solution or provide fund recommendations. We tested combinations of the six factors and found that a variation in factor choices and weights could drive performance that was well-aligned with the goals typical of investors across three retirement life stages:
- Accumulators tend to be younger and more risk tolerant.
- Pre-retirees are experienced and seek a good balance between high expectations and conservation of capital.
- Retirees are in the pay-out phase and least tolerant of investment risk.
These retirement investor profiles can help you distinguish between clients who may be comfortable with high performance potential and moderate risk and those who may need high income and low downside risk.
Request a custom Diagnostic Report now to see how your client’s funds rank against three life stages, or reach out to your Voya Representative at (800) 334-3444.
1 *Voya Investment Management, March 2015 survey of retirement advisors by GDC Research and Practical Perspectives