American Funds ups its game in retirement arena

Amid outflows from its retirement fund share classes, American Funds is kicking its 401(k) business into high gear and courting advisers.
Over the past year, American Funds, has quietly expanded its selection of non-proprietary funds available to advisers and began allowing advisers to outsource fiduciary responsibility for plan oversight to a third party.
Last summer, the company, which is owned by the Capital Group of Cos. Inc. also launched an advertising campaign aimed at advisers specifically in the retirement space.
“We haven’t made the marketplace aware of our thoughts, and we haven’t had a prominent voice in the marketplace,” said Bill Anderson, senior vice president of the retirement business at American Funds. “Advisers, consultants and plan sponsors want to hear more from us, and we’re making sure that when we have a point of view, we’re more deliberate in getting that out.”
To be sure, American Funds is a small player in the 401(k) arena.
It provides record keeping service to plans with about $40 billion in assets, compared with $920 billion for industry giant Fidelity Investments. American Funds oversees about 35,000 corporate 401(k) plans.
The focus on adviser-sold 401(k) plans come as American Funds is losing assets from its retirement plan share classes. After experiencing net outflows of $19.2 billion in 2011, the share classes lost an estimated $19.5 billion in 2012, according to Morningstar Inc.
And the trend has continued, as year-to-date through the end of February, $687.8 million exited American Funds’ retirement share class offerings.
American Funds disputes Morningstar’s findings but hasn’t provided its own flow data.
As part of its strategy to build its 401(k) business, American Funds last year broadened its Recordkeeper Direct offering by adding a multi-fund version, which allows sponsors to choose from a variety of managers including JP Morgan Asset Management and The Vanguard Group. These investments are offered via a group annuity issued by Great-West Life & Annuity Insurance Co., privately labeled for American Funds.
Now, fund lineups can have a mixture of 60% proprietary funds and 40% non-proprietary.
Last year, American Funds’ teamed up with Wilshire Associates Inc. to allow brokers the ability to outsource fiduciary investment management responsibilities to Wilshire. Other 401(k) providers, particularly insurance companies, have made similar moves in the past 18 months.
But the company has a rocky road ahead.
American Funds was late to the party on expanding the fund offerings on its Recordkeeper Direct platform. In comparison, its third-party administrator program, PlanPremier, has made outside mutual fund offerings available for more than 10 years.
Further, some advisers say they’d like to see the company take a more hands-on approach — for example by sending out representatives locally to help with the plan sponsors they serve.
“American Funds doesn’t necessarily have local service teams in every marketplace or geographic region to service the plan, but other vendors can send along someone to come in and help do education meetings,” said Alexander G. Assaley, an adviser with AFS Financial Group LLC.