PLANADVISER - May/June 2019 - 28

in competition. There's more transparency and a greater
focus on costs-those are all healthy trends. "
For sponsors and advisers, implementing a new DCIO
investment choice to a plan lineup is straightforward. " In
the large-plan market, it's pretty easy, " says David O'Meara,
senior investment consultant at Willis Towers Watson in
New York City. " If a plan has $50 million it wants to put into
a fund, its consultant or adviser will just go to the recordkeeper
and tell it to add the fund. Most of the time there's
no cost to the client. "
For smaller plans, it may take some time and money,
O'Meara says. " Sometimes the recordkeeper will just say, no.
Other times there will be some cost involved, and maybe
the fund family will pay some of that to get on the platform.
Other managers might be able to say, 'I represent all
of these strategies, and all of your clients will benefit if you
put them on your platform.' For recordkeepers that are not
asset managers, they might like that, as they have more to
offer all of their clients. "
tutional retirement plans at the eponymous Atlanta Retirement
Partners. " And, with so much data coming out weekly,
monthly and quarterly, things can change very quickly; the
good DCIO managers expedite that flow of information. "
Greg Porteous, head of defined contribution intermediary
strategy at State Street Global Advisors (SSgA) in
Boston, notes, " We've found that, while advisers have their
own processes in place to evaluate active managers, they
may not have a structured method for index managers. We
also ask advisers to define the objective of the fund. If it's
to provide diversification, then we help with defining the
right index.
" Fees are a big consideration for index funds, " Porteous
continues, " but also important are how closely a fund tracks
a benchmark and operating considerations such as whether
the manager crosses trades in-house, and how he handles
the risks in securities lending-all points that may not be
apparent from a fund fact-sheet. "
Asset managers additionally provide advisers with qual...
because of widening costs, narrowing revenues,
and investment complexity, open architecture
DCIO structures may have started transforming-not
regressing entirely to in-house proprietary funds but
retreating to a limited fund menu.
DCIO investments have been around long enough that
few in the business today remember exactly when they
got started, although many observers place this around 20
years ago. But, clearly, sponsors endorse the idea, as open
architecture and DCIO have gained plenty of momentum:
Researchers at Cerulli Associates sized the DCIO market at
$4.6 trillion at the end of 2017-more than half the DC plan
industry's assets.
Recently, some recordkeeping firms have begun taking
advantage of their consolidated scale by chipping away at
the unaffiliated fund manager DCIO market. Some advisers
and fund managers believe these new programs lack transparency
and introduce conflicts of interest that DCIO was
intended to prevent, while others see the move as, instead,
a middle ground compromise that could lead to lower costs
and benefit DC plan participants.
Benefits to Advisers
Besides offering participants a broader investment choice
and sponsors a means to better fulfill their fiduciary responsibility,
DCIO structures provide benefits to the advisers
who rely on them. One is in-depth analysis of fund results.
" The best DCIO teams go beyond simple performance
numbers and explain fund returns in the context of the
level of portfolio risk, " says David Griffin, director of instiitative
information on funds-for instance, on their efforts
at social responsibility. " Many Millennial participants are
interested in investment choices that have been carefully
screened for companies' ESG [environmental, social and
governance] performance, " Griffin says. " A fund company
might have options that score high on social responsibility
that we're not aware of, and DCIO teams reach out to us
on that. "
DCIO asset managers also support advisers on the business
side by giving insights on customers they might be prospecting,
as well as regulatory updates and practice consulting.
Sometimes, they facilitate events for clients. " I think advisers
look to managers' DCIO teams as thought leaders and true
partners, not just a checkbook, " Porteous says.
In a 2018 survey that confirms this, researchers at
Cerulli Associates found that specialist DC advisers put the
greatest value on DCIO firms' participant engagement tools,
target-date fund (TDF) evaluation, in-depth product information,
regulatory guidance, and plan fee benchmarking.
However, some advisers believe such assistance has its
limits. " DCIO salespeople give us their attention, and we
welcome hearing about new products, but we take it upon
ourselves to do the impartial analysis, " says Dominic DiPietro,
president of independent adviser firm Newport Capital
Group in Red Bank, New Jersey. " Some advisers lean on the
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