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A World Without the SVIA?

In the classic film It's a Wonderful Life, the heavily burdened George Bailey learns what the world would have been like if he hadn't been born. Seeing the good he's done, he regains his zeal for life. Addressing the SVIA Forum, outgoing SVIA Chairwoman Victoria Paradis considered what the financial world would be like without the SVIA. She concluded that like George Bailey, it has played an important role for many people, not just its own members. In a worst-case scenario, she says, a world without the SVIA might have resulted in a world without stable value investments. If so, millions of stable value investors might be lamenting the lower returns they'd be earning on money market funds right now, or the increased volatility they'd be experiencing with bond funds.

Paradis noted that the stable value industry relies on favorable regulation, legislation and accounting rules to preserve its unique book-value accounting in what has increasingly become a fair-value world. Over the past several years the SVIA has been instrumental in championing its role in the financial marketplace. In the future, she said, maintaining the industry's complex framework will require that the industry continue to speak with a consolidated and powerful voice.

The SVIA's accounting and communications committees both serve that effort, Paradis said. Their efforts are buttressed, she said, by the sheer size of the stable value industry, which exceeds $400 billion. Regulators and legislators alike appear to have recognized that rulings adverse to the stable value marketplace would have a negative impact on the investment activities of millions of retirement plan investors, Paradis said.

The industry has faced challenges in recent years. Adverse regulatory decisions on accounting for stable value mutual funds effectively shut down that fledgling business just several years after its launch is just one example. Still, Paradis insisted that significant growth opportunities remain. Growth of stable value's primary market, defined contribution retirement plans is expected to grow. The consulting firm Cerulli Associates expects the defined contribution market to enjoy asset growth of 9 percent annually over the next several years with assets reaching $4 trillion by the year 2010. While stable value should grow simply as a slice of a bigger pie, Paradis also said the industry has a chance to increase its market share. It can do that, she said, both by winning assets from other conservative investment options and by gaining representation in the lifestyle funds that are becoming increasing popular in defined contribution retirement plans.

To make this growth happen, though, Paradis said the SVIA will need a continued long-term financial commitment from its members, along with active, thoughtful voices willing to tackle the challenges and opportunities the industry faces.

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