HARTFORD, Conn. - CIGNA Retirement & Investment Services, Hartford, is working with two well-known consulting firms to provide its own product managers and clients with better due diligence for funds in its bundled 401(k) product.
CIGNA offers what it calls a Multi-Manager Matrix to defined contribution plan clients for the investment portion of its 401(k) plan service. The matrix of 39 funds contains 17 CIGNA commingled funds and 22 diversified funds from Fidelity Investments, the Vanguard Group of Investment Cos., INVESCO Funds Group, Twentieth Century Investors and Warburg Pincus Counsellors Inc.
The CIGNA Due Diligence Advisor service will use Callan Associates Inc., San Francisco, and Ibbotson Associates Inc., Chicago, to help CIGNA best structure the composition of the matrix and to track performance of the options selected against peer groups.
Callan is developing an investment policy statement for the matrix and selection criteria for evaluating and selecting funds to offer within the matrix.
Ibbotson is using its proprietary EnCorr/Attribution software to analyze the style characteristics of the funds CIGNA uses in its Investment Manager Matrix. Ibbotson also will use the software to identify peer groups of funds with similar investment objectives in order to allow CIGNA to track and compare the performance of its investment options against the average returns of the peer group. Ibbotson will create a quarterly monitoring system to track performance, which CIGNA will update and maintain, using the EnCorr/Attribution software program.
While CIGNA is having the system built primarily to help itself determine the best options offered in its 401(k) program, clients will also benefit, said Douglas Klinger, senior vice president of marketing and business development.
"Clients, particularly large DC plans, have been concerned for the last six to 12 months about getting more consulting help in selecting the options offered within their plans, both from the investment as well as the due diligence aspects. But they didn't want to pay an outside consultant for the services," he said.
"We felt, internally, that there could be a perceived conflict of interest in offering those clients help from our own internal consulting unit.
"Larger DC plans were also questioning the structure of the manager matrix - how had we constructed it, what investment discipline was being applied, how we were determining that we had chosen the best funds for a particular asset class," said Mr. Klinger.
The Due Diligence Advisor will allow CIGNA to construct an optimal lineup of fund offerings, based on more objective criteria, and to show clients, on a quarterly basis, how those options are performing.
The analytical tools Ibbotson is building will also let CIGNA provide plan sponsors with customized analysis, based on the individual fund options they select for their plan, said Mr. Klinger. That could help plan sponsors better prove the prudence of their investment options, should a plan's fiduciary responsibility be legally challenged by participants.
Callan's investment policy statement and selection criteria may lead CIGNA to make changes in the managers and funds within the matrix, Mr. Klinger said.
The service should be available by the end of 1996.
"We'll move to a system where we apply an investment discipline and methodology to our selection process and maintain that discipline, from merely being a provider of (mutual fund) product," Mr. Klinger said.
