Committed to DC plan sponsors in turbulent times

May 27, 2020

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Martha King, managing director of the Institutional Investor Group, talks with Sherryann Plesse, head of Retirement Plan Client Services, and Matt Brancato, head of Institutional Investor Services, about the current environment and how we plan to continue to support defined contribution (DC) plans.

Supporting DC plan sponsors amid volatility

Martha King: Hello, I'm Martha King, head of our institutional business. These are difficult times for all of us, clients and crew alike. We have all had to adjust in new ways, one of which is working from home.

For me, this means I get to talk to you from my home while I speak with my colleague, Sherryann Plesse, who is also in her home. Sherryann, as head of Retirement Plan Client Services, the team that supports our recordkeeping business, your team talks to retirement plan sponsors every day. We are moving further into this time of market volatility and we're seeing all kinds of new pressures on companies and organizations.

What are you hearing from clients, and how have we been engaging with them?

Sherryann Plesse: Plan sponsors certainly have a lot on their minds during this unprecedented period of time. First and foremost, they are worried about the health and safety of their employees. From a retirement security perspective, they're worried about participants' short-term and long-term financial goals.

Our plan sponsors have been highly engaged with us during this time as we try to help them navigate both the market volatility and the changing regulatory landscape. Nearly 5 million participants count on us in partnership with their plan sponsors to help them reach their retirement dreams.

The good news is, according to our research, 95% of all participants are staying the course and are not trading in response to market volatility.

Martha King: How are we helping to advise these participants, especially in times like these?

Sherryann Plesse: Guidance from Vanguard is and always has been to stay the course during times of market volatility and not react emotionally to the circumstances.

In the face of this crisis, we have communicated to all of our participants and have seen more than 2 million of them interact directly with our website. Our participants are benefiting from just-in-time information that is relevant to their worries and their concerns during this period of time.

I would also mention that the role professional advice can play is an important one during time periods like this. Vanguard has a long-standing partnership with Financial Engines, and we have recently launched advice offers that can help participants feel confident and secure through periods of market volatility.>

In a professional advice service, a participant turns over the keys to a professional asset manager who can make portfolio decisions based on factors such as age and risk tolerance. Professionally managed accounts can help insulate participant portfolios from the damage that emotional decision-making can have during periods of time like this.

Martha King: But it's my understanding we're still seeing higher call volumes, higher than normal. Is that right?

Sherryann Plesse: Yes, we're experiencing historically high call volumes. On March 16 alone we took 1.8 million logins to our website and managed 83,000 phone calls across both our retail and our retirement business.

On that same day alone, in the retirement business on its own, we took 25,000 calls and 500,000 website visits. And we have hit similar volumes throughout this period of time.

Our participants' questions regarding the CARES Act and sometimes just hearing a safe voice on the other side of the phone are driving a lot of those volumes.Now I'm happy to report that our crew and our systems have handled the volumes seamlessly. I know that our crew take great pride in being that voice of calm at the other end of the phone.

We are in daily meetings to evaluate our business, and we add capacity where we need to. We will constantly be evaluating in this space.

Martha King: So what does that mean for our crew?

Sherryann Plesse: With COVID-19, we have about 98% of our crew working from home with little to no disruption in our service. And we have committed to staying connected to both plan sponsors and participants during this busy period of time.

Martha King: Can you talk about what that commitment looks like?

Sherryann Plesse: Well, Martha, first and foremost, our commitment is demonstrated by our ability to effectively consult with our clients through this period of ambiguity. In one example, there have been major legal changes to retirement plans; both the SECURE Act and the CARES Act required plan sponsors to think about their plan provisions and make changes appropriately.

I also want plan sponsors to know that we continue to be a very strong voice in Washington around retirement policy and beneficial changes that will help participants achieve their retirement dreams.

I know, for example, that right now our Strategic Retirement Consulting Group is hard at work consulting with plan sponsors and helping them make the necessary changes. If our plan sponsors need help through this period of time, we are there for them; and they can get in touch with the right resources by contacting their relationship managers. We are here to help.

Martha King: Thanks, Sherryann. It sounds like you and your organization have been very busy. And a big thanks to all of our clients. We know this is a difficult time for you and that you're worried about your participants, and so we remain committed to helping you. It goes back to our mission, which market volatility or not, never changes: To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.

Please feel free to reach out to your Vanguard representative if you have additional questions about how we can help you navigate this difficult time.

Managing assets for institutional clients

Martha King: Hello, I'm Martha King, head of our institutional business. In these challenging times, I've been heartened by the resiliency I've seen from both our clients and our crew. We've all been called on to adjust to new ways of working. The institutions we serve, the consultant community, we've all had to adjust to new ways of communicating, ways that often call for us to work from home.

Well, that's what I'm doing today, except I'm doing it on camera along with my colleague who is also at home, Matt Brancato, who heads our institutional asset management business.

Matt, you've just moved into your role here in Institutional after heading up the group responsible for overseeing Vanguard's mutual funds and ETFs. What are your initial observations about the environment for our clients from an investment perspective, and what do we see clients doing in these unprecedented times?

Matthew Brancato: Let's start with what we're hearing from defined contribution plan sponsors. We serve more than 20 million individual Vanguard defined contribution investors, so it's no small task to try to keep a pulse on what's going on across the marketplace and it's why we have so many experts focused on the space.

As you know, our Investment Solutions Group is made up of experts in this area, and they're delivering investment perspectives, evaluations, and solutions through the collaborative partnerships with defined contribution plan sponsors and consultants that we have in the space. So these experts continue to work through the periods of uncertainty, both the market volatility on the downside that we saw in March and the rebound that we've seen since the beginning of April.

Even in this new virtual environment interactions are up, so that Investment Solutions experienced about a 20% year-to-year increase, which is expected, and we think a good thing. It's expected because we've been through periods like this, and clients tend to reach out and want to talk through these environments and periods like we're experiencing. And we think that's a good thing because it ultimately means that clients are continuing to look to us for sophisticated investment support and guidance.

Martha King: Matt, what kind of guidance are they looking for? What are their concerns?

Matthew Brancato: We serve DC clients in two ways on our recordkeeping platform and on other recordkeeping platforms. Across both, we're seeing that plan sponsors are staying the course like the plan participants they serve. So, broadly, only 3% of investors across Vanguard's platform are executing any trades. Within the plan sponsor defined contribution space, only 1% of participants who own target-date funds as their sole investment are trading. Relationship managers are responding to the questions that are coming up by leveraging the deep relationships that we've built to reinforce the message of staying focused on the long term, staying calm amid this period of volatility.

What we're seeing is that questions are arising in the areas that matter most. Target-date funds is one example. One concern we've heard quite a bit is just how the volatility in the markets has impacted our Target Retirement Funds.

Martha King: And what's our response to that question?

Matthew Brancato: First and foremost, our Target Retirement Funds are doing what they were designed to do, they're rebalancing to keep the portfolios' asset allocations aligned with target weights. These are all-weather portfolios with embedded diversification and rebalancing. Going all the way back to 2003, the Target Retirement Funds have experienced a lot of different periods of market volatility and periods of gray markets. So the Target Retirement Funds have performed well across a number of different timeframes since 2003.

So from a rebalancing perspective, what that all means is that through that market time period, Target Retirement Funds were buying equities. During the April rebound, they were selling equities to maintain those target weights.

During all of these periods, the objective of the portfolio manager is to maintain the risk-return profile of the target allocations while mitigating rebalancing costs. The portfolio managers are very experienced in the space and have been able to leverage their knowledge and experience to deliver on both of these objectives.

On the COVID-19 pandemic, we certainly did see stress in the bond market. There's signs of both stress and illiquidity. Since the early stages of the pandemic, these signs of stress and illiquidity have mitigated and been tempered, so that's certainly been a good thing. And throughout the time period, our portfolio manager expertise has really come to bear and, again, both maintained the target risk-return allocations and mitigating rebalancing costs.

Martha King: Thank you, Matt. But most of all, thank you, our clients, as we navigate these difficult times. And when the seas do eventually calm, we will always be here to serve you, focused both on your well-being and that of our crew.

Please feel free to reach out to a Vanguard representative if you have additional questions about how we can help you navigate this difficult time.

Thank you for watching.

Notes:

  • Investments in Target Retirement Funds or Trusts are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund or trust would retire and leave the workforce. The fund or trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
  • Advisory services are provided by Vanguard Advisers, Inc. (VAI), a registered investment advisor.
  • All investments are subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Financial Engines is a trademark of Financial Engines, Inc. All rights reserved. Used with permission.
  • Diversification does not ensure a profit or protect against a loss in a declining market.