Insurer sees mutual fund growth

APR 01, 2012
By  JKEPHART
Despite throwing in the towel on several of its operations, executives at The Hartford Financial Services Group Inc. think that the insurer can increase its mutual fund assets by double digits annually. And that is a big part of the reason why the company is holding on to the business. “Our product offerings and distribution footprint really position us to be able to grow at a fairly aggressive pace,” said Martin Swanson, chief marketing officer. The Hartford stunned some financial advisers two weeks ago when it said that it is exiting the annuity business. Moreover, management at the embattled company said that the insurer plans to sell off both its life insurance business and its independent broker-dealer, Woodbury Financial Services Inc. But to help bulk up its mutual fund business, The Hartford is expanding its reach to advisers. The firm will add about 50 salespeople to its 100-person sales force this spring. The new hires will be mainly internal wholesalers as the company tries to get to a 1-1 ratio between internals and externals. Currently, it is at a 2-1 ratio. “It will help us get our story out to advisers more effectively and efficiently,” Mr. Swanson said.

DC FOCUS

A portion of the new hires will also be focused on advisers who work with defined-contribution plans as The Hartford looks to expand its DC investment business. “It's a small portion of our business, compared to our retail assets, so there's room for it to grow,” Mr. Swanson said. In addition to broadening the sales team, The Hartford is relocating its mutual fund headquarters to Radnor, Pa., from Simsbury, Conn. That shift will move the operation closer to Wellington Management Co. LP, which is based in Boston but has offices in Radnor. Wellington is the subadviser of 45 of the Hartford's 77 mutual funds, including all its equity funds. But The Hartford is in the process of moving all its funds to Wellington, pending approval from the remaining funds' board. “We're really trying to make it the investment engine for all of our investment products,” Mr. Swanson said. Having a subadviser for all the mutual funds also should help keep investors' minds off the dramatic events at The Hartford, said Katie Reichart, an analyst at Morningstar Inc. “Since Wellington is managing the assets, the actual strategies are removed from all the noise that is going on at the parent level,” she said. “There was some uncertainty around the funds when it looked like they could be sold, but at least now they have a clear plan they've laid out.” The final piece of the plan to increase The Hartford's mutual fund assets will begin in earnest once Wellington takes over the insurer's fixed-income mutual funds. Right now, those are run in-house. “We feel we've been underrepresented on the fixed-income side,” Mr. Swanson said. “There's a good deal of opportunity there.” The Hartford's fixed-income funds have lagged the industry in terms of flows. Fixed-income funds had net inflows of $130 billion last year, but at The Hartford, the fixed-income funds had net outflows of $1.1 billion. “The fixed-income funds didn't always have the best performance,” Ms. Reichart said. “Wellington's a very respected manager, though, so the change could be good for shareholders,” she said.

TARGETED GROWTH

Still, Ms. Reichart said that she is uneasy when a firm targets a specific asset class for sales growth. “It's always concerning to hear fund companies say they are targeting asset growth in certain areas. It's not always the best for shareholders,” Ms. Reichart said. “We like to see marketing plans that make a lot of sense, not ones that are just based on gathering assets,” she said. It is a particular concern in fixed income. Investors have poured more than $680 billion more into fixed-income mutual funds than they have taken out since the end of 2008, according to Morningstar. With interest rates starting to inch upward, Ms. Reichart warned that investors could be in for a “rude awakening” when rates start to rise substantially. [email protected]

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