Simplifying—and Selling—Stable Value

It’s hard to maximize sales and market share when consumers don’t fully understand or appreciate your brand— Imagine that automobile buyers didn’t know that Ferraris are fast, that Jeeps are designed to take on rugged terrain or that a Lexus is likely to deliver above-average reliability.

This is something anyone in the stable value business can appreciate. According to a survey by Metropolitan Life Insurance, only 53 percent of plan sponsors know that stable value funds historically have generated higher returns than money market funds. Only 17 percent of plan sponsors, and only 22 percent of plan advisors, know that stable value returns historically have outpaced inflation. And only 37 percent of plan sponsors are very or somewhat familiar with new regulations that will take effect in October 2016 for money market funds, the most direct competitor to stable value funds.

These statistics prompted MetLife’s Tom Schuster, vice president, stable value management, to convene four stable value colleagues in a panel at the SVIA’s 2015 Fall Forum to discuss how the stable value industry could better promote its products.

The most popular idea? Make stable value simpler and easier for plan sponsors, plan consultants and plan participants to understand. When MetLife surveyed plan sponsors on why they don’t offer stable value to their plan participants, 22 percent cited the complexity of the asset class and 11 percent said they weren’t knowledgeable enough about it. “There appears to be a misperception about stable value that it’s complex, and we need to change that perception if stable value is going to grow,” Schuster said. “We need to simplify the asset class to expand the base for stable value.”

Jeff Stein, a vice president and senior research analyst with Morgan Stanley, encouraged his colleagues to develop a short, easy-to-understand pitch, perhaps just a minute long, that shows what stable value has to offer and demonstrates the value it adds relative to money market funds. Asked whether it would be helpful to have independent research from academics comparing stable value to alternative investments, Stein said it would have to be distilled down to accessible talking points and should highlight the entire asset class rather than coming across as a product pitch.

Beyond simplifying the marketing pitch for stable value, some panel participants suggested it might help to simplify the product itself—by narrowing the definition of competing investments that require an equity wash provision in a retirement plan, for example, or by minimizing the types of plan changes that require the approval of stable value providers.

“If you can reduce complexity around the equity wash, it will help sell the product,” said Tony Luna, head of stable asset management for T. Rowe Price Associates. He suggested the industry might limit the equity wash provision strictly to other products that have stable net asset values. “Some of the risks we’re modeling don’t make sense to buyers,” he argued.

Warren Howe, MetLife’s national sales director for stable value markets, said that as a wrap issuer he isn’t terribly opposed to the idea of narrowing the definition of a competing fund for purposes of an equity wash. While it may have been fine to cast a wide net in the past, when the industry wasn’t having trouble growing, he said, current market conditions argue for changes that will help grow the asset class. “It’s a question of how narrow [we make the equity wash provision], where do we get to over time, and how many firms will be of the same mindset on the wrap side,” he said.

Panel participants also questioned whether it might make sense to minimize the number and type of corporate events that could expose stable value investors to potential account write-downs. They generally agreed that corporate-event provisions make sense, but the discussion prompted Howe to observe that the industry should be asking plan sponsors and advisors exactly what they mean when they say stable value is too complex. “We can put messages out there, but if we’re educating them on the wrong issues, we’re shooting blankly into the sky,” he said.

Regardless of any changes made to stable value products themselves, Luna suggested that the industry’s educational efforts should focus on consultants, since they control the industry’s access to so many plan sponsor clients. Howe added that it also could be helpful to target educational efforts at plan sponsors and participants, although he conceded that it may be more difficult to reach them, especially in the case of participants.