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  • Welcome As training and marketing are more closely aligned, this year we plan to have marketing sessions that explain shifts in strategy and how we address these with our clients and their participants. This initial session pulls together a number of initiatives that are underway that allow the Defined Contribution Business to address an expanded target audience and pursue additional revenue growth and market share The objective of this presentation is to Ensure all customer facing personnel and new hires are consistently articulating the changes to the core positioning of the business DC business. Provide specific messaging regarding the product and services enhancements Give context to the strategy Ensure the business in articulating the changes in a consistent fashion in all materials: Site visits, sales presentations, service calls, customer visits
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    1. 1. Lifecycle Funds-Right on Target Advantage 2005 John Sturiale CFP ® AIF ® , Director Retirement Investment Services The material contained herein is proprietary to Schwab and for informational purposes only. None of the information constitutes a recommendation by Schwab or a solicitation of an offer to buy or sell any securities. The information is not intended to provide tax, legal or investment advice. Schwab does not guarantee the suitability or potential value of any particular investment or information source. Certain information presented herein may be subject to change. Neither the presentation, nor any information or material contained in it may be copied, assigned, transferred, disclosed or utilized without the express written approval of Schwab. © 2005 Schwab Retirement Plan Services, Inc. All rights reserved. (0805-8963).
    2. 2. Our Mission <ul><li>Why are we here today? </li></ul><ul><li>- To help participants get to and through retirement </li></ul><ul><li>- To educate on the latest industry trend, Target Retirement Funds </li></ul><ul><li>Retirement made easy - Target Retirement Funds </li></ul><ul><li>- One Simple, Informed Decision </li></ul>
    3. 3. Target Retirement Funds <ul><li>There are 3 Types of Funds: </li></ul><ul><li>Lifecycle/Target Retirement </li></ul><ul><li>Lifecycle, Age-Based </li></ul><ul><li>Adjust with a specific Target Date in mind. Usually year-dated funds: </li></ul><ul><li>*2010 * 2020 </li></ul><ul><ul><li>*2030 *2040 </li></ul></ul><ul><li>Become more conservative as retirement date approaches </li></ul><ul><li>Participant takes a “hands-off” approach, portfolio automatically rebalanced by Professional Money Managers </li></ul><ul><li>Lifestyle </li></ul><ul><li>Lifestyle, Risk-Based </li></ul><ul><li>Tailored to a particular age and risk tolerance </li></ul><ul><li>Usually range in risk tolerance: </li></ul><ul><li>*Conservative </li></ul><ul><ul><li>*Moderate </li></ul></ul><ul><ul><li>*Aggressive </li></ul></ul><ul><li>Over time the participant must monitor and change funds as retirement date grows closer </li></ul><ul><li>Balanced/Asset Allocation </li></ul><ul><li>Balanced Fund </li></ul><ul><li>Not managed to a certain date or risk tolerance </li></ul><ul><li>Maintain “static” allocations among stocks and bonds ( Typically 60% Stocks, 40% Bonds ) </li></ul><ul><li>Asset Allocation Managers are more flexible with allocation ranges than Balanced Managers </li></ul>
    4. 4. Industry Statistics Usage and Growth in the Industry LifeStyle and LifeCycle Funds (1999 – 2004) Target Retirement Funds (2002 – 2004) 63% of U.S. plan sponsors now offer these types of vehicles [lifecycle funds], up from 25% in 2001 1 1 Mercer Investment Consulting Survey, April 2004
    5. 5. Industry Statistics <ul><li>Lifecycle Fund Investors’ Avg. Annual Return: + 3.06% 1 </li></ul><ul><li>Non-Lifecycle Fund Investors’ Avg. Annual Return: - 0.35% 1 </li></ul><ul><li>Returns for professionally managed pension funds beat self-directed 401(k) plans by 4.3% in 2000; 3.5% in 2001; and 3.8% in 2002 2 </li></ul><ul><li>21% of respondents said they were much more likely to participate in an employer-provided plan, like a 401(k), if it provided a life-cycle fund 3 </li></ul><ul><li>23% of employees participating in their employer-sponsored plan said they were “very likely” to use a life-cycle fund 3 </li></ul><ul><li>63% of US plan sponsors now offer these types of vehicles [life-cycle funds], up from 25% in 2000 4 </li></ul>Additional Industry Statistics 1 Burgess & Associates, 1993-2003 Study of 90K DC Plan Participants 2 Watson Wyatt World Study, 2002 3 Employee Benefits Research Institute (EBRI) and Matthew Greenwald & Associates 4 Mercer Investment Consulting Survey, April 2004 – 434 responses
    6. 6. One, Simple Solution 1 Employee Benefit Research Institute Issue Brief 272 2 Hewitt Associates 2003 3 Profit Sharing Council of America Intelligent Rebalancing -Maximizes turnover efficiency -Controls Risks Rebalance Inertia - 60% of participants never rebalance after making an initial enrollment 3 Multi-Level Diversification -“Best-in-class” investment managers -Low overlap/correlation of holdings Insufficient Diversification - More than 33% of portfolios were concentrated in just one or two asset classes 2 Refined Asset Allocation -Better risk/return performance -Automatic allocation adjustment -Fully invested Misguided Asset Allocation - Approximately 50% of participants have equity allocations of either 0% or more than 90% 1 Solution! Problem . . . ?
    7. 7. Evaluating Target Retirement Funds <ul><li>What should you look for when evaluating </li></ul><ul><li>Target Retirement Funds? </li></ul><ul><li>Active vs. Passive Management </li></ul><ul><li>Glide Path of Funds </li></ul><ul><li>Style of Investing </li></ul><ul><li>Underlying Management (Proprietary vs. Non-Proprietary) </li></ul><ul><li>Benchmark Analysis </li></ul>
    8. 8. Target Retirement Funds Participant will pick one fund depending on their desired target retirement year: 2010, 2020, 2030, or 2040. As the target date approaches, the fund automatically becomes increasingly more conservative to help reduce portfolio risk .
    9. 9. Glide Path <ul><li>Allocation at retirement is 75% Bonds/Stable Value & Cash and 25% Stocks . </li></ul><ul><li>This remains static through retirement in the Retirement Income Fund </li></ul>Automatic Asset Allocation Adjustment
    10. 10. Asset Allocation Diversification Across Asset Classes
    11. 11. Underlying Investment Management Management Approach: Multi Manager vs. Proprietary Manager Proprietary Manager G Best in Class Stable Value Mgr Stable Value Proprietary Manager F Best in Class Bond Mgr Core Bond Proprietary Manager E Best in Class International Mgr International Small Proprietary Manager D Best in Class International Mgr International Core Proprietary Manager C Best in Class Small Cap Mgr Domestic Small Proprietary Manager B Best in Class Growth Mgr Large Cap Growth Proprietary Manager A Best in Class Value Mgr Large Cap Value Proprietary Manager Approach Multi-Manager Approach
    12. 12. Underlying Investment Management Schwab Managed Retirement Trust Funds Mutual Fund A Mutual Fund B Management Approach: Multi Manager vs. Proprietary Manager According to Overlap ® , a percentage of 20% or more indicates significant overlap of equity holdings. (Shown in red)
    13. 13. Benchmark Analysis <ul><li>Example: Target Retirement 2020 Fund </li></ul><ul><li> 1 Year Return </li></ul><ul><ul><li>2020 Fund 12.00% </li></ul></ul><ul><ul><li>2020 Benchmark* 11.00% </li></ul></ul><ul><ul><li>Benchmarks are a composition of the underlying category indices: </li></ul></ul><ul><li>Sample Asset Allocation Sample Benchmark Composition : </li></ul><ul><li>Domestic Equity 54.00% Russell 3000 54.00% </li></ul><ul><li>Int’l Equity 13.00% MSCI EAFE 13.00% </li></ul><ul><li>Fixed Income 31.00% LB US Agg. Bond 31.00% </li></ul><ul><li>Cash 2.00% 3 Month T-Bill 2.00% </li></ul>These values are for illustrative purposes only and do not reflect the performance of any particular investment security. Benchmarks created should measure the performance of each manager and the portfolio as a whole.
    14. 14. Comparison <ul><li>Fund Structure </li></ul><ul><ul><li>Active vs. Passive Management </li></ul></ul><ul><ul><li>Proprietary vs. Non-Proprietary Management </li></ul></ul><ul><ul><li>Mutual Funds vs. Collective Trust Funds </li></ul></ul><ul><ul><li>10-Year Increments vs. 5-Year Increments </li></ul></ul><ul><li>Oversight </li></ul><ul><ul><li>Some products have a 3 rd Party Oversight </li></ul></ul><ul><li>Product vs. Process </li></ul><ul><ul><li>Best-in-Class vs. Proprietary Managed Products </li></ul></ul><ul><li>Asset Allocation </li></ul><ul><ul><li>Some Products are More Aggressive </li></ul></ul><ul><ul><ul><li>(i.e. 2010 Funds: Manager A has 67% Equity, while Manager B has 45% Equity) </li></ul></ul></ul><ul><ul><li>Some manage to a Target Date, Others Manage Past Target Dates </li></ul></ul>
    15. 15. Ideal Structure <ul><li>Summary of Main Characteristics to Consider When Choosing a Target Retirement Fund: </li></ul><ul><li>Investment Diversification within the Portfolio </li></ul><ul><li>Investment Manager Due Diligence & Oversight </li></ul><ul><li>Investment Management- Non-Proprietary vs Proprietary </li></ul><ul><li>Competitive Performance and Reasonable Fees </li></ul>
    16. 16. The Future <ul><li>What can you expect to see in years to come? </li></ul><ul><li>More Variations </li></ul><ul><li>More Multi-Manager Approaches </li></ul><ul><li>Further Popularity within the Industry </li></ul><ul><li>Further Default Options by Age </li></ul><ul><li>Reduction in Balanced Fund Options in Plans </li></ul><ul><li>Reduction in Number of Total Options in Plans </li></ul>
    17. 17. Q&A <ul><li>Thank You </li></ul>
    18. 18. Disclosure <ul><li>Schwab Corporate Services (SCS) provides services to retirement plan sponsors and participants through Schwab Retirement Plan Services, Inc, The Charles Schwab Trust Company, and Charles Schwab & Co., Inc. SCS also provides equity compensation plan services and other financial and retirement services to corporations and executives. Schwab Retirement Plan Services, Inc. provides recordkeeping and related services with respect to retirement plans. CSTC, a California state-chartered trust company, provides trust and custody services to retirement plan sponsors. Charles Schwab & Co., Inc. (Member SIPC) is a registered broker/dealer, offering the Schwab Personal Choice Retirement Account® (PCRA), as well as other brokerage and custody services to its customers. These entities are affiliates of each other and are wholly owned subsidiaries of The Charles Schwab Corporation. </li></ul><ul><li>The Schwab Managed Retirement Trust Funds are collective trust funds.  They are not mutual funds and their units are not registered with the SEC or regulatory authorities in any state or other jurisdiction.  The funds are not guaranteed by The Charles Schwab Trust Company, any of its affiliates, the FDIC or any other person.  The unit value of the funds will fluctuate and investors may lose money. Various asset classes of the underlying funds, such as small-cap and international may carry additional risks.  </li></ul>