Folio Unitization Service

Expand Your Retirement Plan Offerings

The next-generation portfolio Unitization Service from Folio Institutional allows investment advisors, model managers and recordkeepers to efficiently provide customized model portfolios including allocations of model portfolios to retirement plan sponsors and participants¹.

Until now, many retirement plans were limited in their choice of plan offerings due to record keeping restrictions that required each investment in the plan to have a Net Asset Value (NAV). This frequently limited many plan offerings to the trading of mutual funds.

With the Folio Unitization Service, plan sponsors can broaden their retirement product offerings since model portfolios that consist of any mix of securities including mutual funds, exchange-traded funds (ETFs) or individual stocks may now be unitized.

How the Folio Unitization Service Works

A single unit value is created for any investment portfolio custodied on the Folio Institutional Platform. As a result, retirement plan participants are provided investment information and pricing through existing recordkeeping systems in a unit value, which makes it easier for recordkeepers to trade the underlying investments through their normal daily valuation process. The models that drive the actual investment and the model portfolios are easily customizable, and can be rebalanced or updated by the advisor or investment manager to include the use of fractional shares of ETFs or individual stocks.

Benefits for Recordkeepers:

• Low Cost: Investment portfolios can be offered cost-effectively to retirement plans of all sizes. The Folio Unitization Service does not require National Securities Clearing Corporation registration, or significant assets under management (AUM), like traditional mutual funds or Collective Investment Trusts.
• Transparent, Online Access: Fully transparent, online access includes price history, detailed fee accruals, holdings, unitized portfolio and account statements.
• Full Disclosure of Fee Accrual Information: The solution allows for multiple, automated fee accrual and invoicing arrangements. The fee accrual is fully disclosed for the record keeper, plan sponsor and plan participants.
• Daily Valuation/Trading Ease: Unit values are downloaded to the recordkeeper daily, allowing the plan sponsor and plan participants to view their updated account balances each day. Daily valuation also allows the recordkeeper to trade the models that drive the actual portfolios as easily as trading mutual funds.

Benefits for Plan Sponsors:

• Expanded Choice of Investment Options: Retirement plans can provide additional customization and diversification for plan participants by offering non-traditional investment products like exchange-traded funds and mixed investment portfolios.
• Reduced Plan Costs: The NAV-style investment vehicles made possible through unitization are a cost-efficient alternative to Collective Investment Trusts and mutual funds.
• Access to a Larger Universe of Investment Managers: Many investment managers do not trade or use mutual funds. With the Folio Unitization Service, plan sponsors can now gain access to a wider array of investment managers, including those who specialize in the management of mixed investment portfolios that may include ETFs or stocks.
• Model Customization: Portfolio models can be easily rebalanced and updated by the advisor or investment manager through Folio’s unique model management system. And, by using the unique Folio platform, actual portfolios can include fractional shares of ETFs and/or individual stocks.

Benefits for Plan Participants:

• Expanded Plan Offerings: Plan participants are no longer restricted to investing only in mutual funds in their 401(k) plan. With the Folio Unitization Service, plan participants can now choose a mixed portfolio from the universe of funds, ETFs and/or individual stocks, giving them access to the potential for better performance, lower fees and more transparency and customization.
• Potential for Increased Returns: By truly diversifying and combining asset types that do not move in tandem with each other, an investor earns higher returns—without increased portfolio risk².

The Folio Unitization Service provides plan sponsors with a significant new ability to provide customized investment management solutions to their 401(k) participants cost-effectively. To learn more about the Folio Unitization Service, contact us today.

1. unitZXchange (uZX), headquartered in Fredericksburg, Va., provides a service for creating a net asset value (NAV) of portfolios that consist of various types of assets. This NAV may be used by record keepers and trustees to facilitate trading of assets that are difficult to trade in retirement plans, particularly in daily recordkeeping 401(k), 403(b), non-qualified and other individual account retirement plans. These portfolios are denominated in units similar to the way mutual fund shares are priced. They usually consist of an asset (or group of assets in a portfolio of securities) which combines with a cash equivalent offering to facilitate trading and settling of unit trades.

The company’s principals have more than 75 years of experience in the investment and retirement plan field, and have been unitizing retirement accounts for more than 15 years, including company stock, managed portfolios, managed separate accounts and group annuity contracts. unitZXchange’s staff has unitized assets in excess of $850 million with individual accounts ranging from $100,000 to $100 million.

2. Angus, J., Brown, W. O., Smith, J. K. and Smith, R. (2006 Draft), What’s in Your 403(b)? Academic Retirement Plans and the Costs of Underdiversification & Considine, Geoff, Ph.D. (2008) What is Diversification Worth? which suggests that, based on a range of estimates from institutional investors and advisors, effective diversification can add 2% per year in total return to a simple portfolio that is 60% S&P 500 and 40% bonds, without adding risk. Missing this diversification benefit equates to 35% less wealth for an investment in this portfolio over a 20-year period, and more over longer time periods, compared to the well-diversified portfolio.