Between 1992 and 1994 alone, insurers' share of 401(k) plans slipped from 34% to 30%, while mutual funds' share leaped from 26% to 37%. Tax-deferred annuities sold by insurance companies fell in share of Americans' total retirement assets to 16.61% in 1996 from its peak in 1990 of 22.56%. In individual retirement accounts, while banks' market share fell dramatically from 61% in 1985 to 18.4% in 1996, insurance companies saw mutual funds and brokerage houses gain the fattest slices of the banks' loss.
While mutual funds and brokerage houses have been expanding their market share, their inroads have been mostly at the expense of depository institutions, not life insurance companies. The retirement market is a growing financial feast, even if insurers do have to compete a little harder for their share of the bounty. By the end of 1996, total private retirement assets in the U.S. stood at almost $ 5.1 trillion, having increased as a share of total national wealth from 10.6% in 1983 to 13.6%.
Individual retirement accounts, although no longer as attractive as a saving vehicle due to the loss of most tax advantages in 1986, still capture a huge amount of total retirement assets. By the end of 1996, savings in IRAs had swollen to $ 1.35 trillion, representing around 3% of U.S. wealth. Most of the growth was from gains in the equity market rather than in new contributions.
With these developments in mind, strategy for life insurance firms in the decade ahead need to aim at stopping their skid out of the retirement market, where they have fallen from a 22.7% market share in 1983 to 18% in 1996. 1. Retain dominance in annuities by increasing cost efficiency in delivery and holding down fees, to maintain competitiveness with other financial services. 2. Slow down loss of market share for IRA accounts. While this market has diminished in terms of new contributions, financial returns on existing IRA assets have grown to 12% of insurance company pension assets as of 1996, from 3.3% in 1983. 3. Jump with both feet into the exploding 401(k) market, with particular emphasis on pursuing the fat market for rollover accounts.
For the life insurance industry, the stakes are clear. While its decline in competitiveness is not as serious as widely proclaimed, its share of the retirement market has been falling by more than 1% a year in recent years. Because its income from annuities has surpassed its income from life insurance since 1985, clearly it must continue to pursue the retirement segment. Now, however, it also needs to look to ways of solidifying and perhaps expanding its share of the 401(k) and IRA niches.
High-profile money managers deserted the traditional mutual fund industry in droves in the early 1990s, seeking fame and fortune as hedge fund managers. Unfortunately, history repeated itself in the late 1990s and into the early 2000s as a number of high-profile hedge funds, including Robertson's, failed in spectacular fashion.
Despite troubles in the last few years, the hedge fund industry continues to thrive. The development of the "fund of funds", which is simplistically defined as a mutual fund that invests in multiple hedge funds, provided greater diversification for investors' portfolios and reduced the minimum investment requirement to as low as $ 25,000. The introduction of the fund of funds not only took some of the risk out of hedge fund investing, but also made the product more accessible to the average investor.
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Orignal From: Mutual Funds Investing Does Not Have To Be Complicated
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