PLANADVISER - May/June 2021 - 28

research / 2021 PLANADVISER DCIO Survey
proprietary funds on their plan menu, can offer concessions
on recordkeeping fees. But asset managers that do not
run recordkeeping platforms want shelf space in plans, too.
Early on they offered labyrinthine fee arrangements to the
recordkeepers and advisers, but these have largely disappeared,
says Chris Brown, a principal of Sway Research, in
Newton, New Hampshire. " The fund companies are still
writing checks to recordkeepers to be on their platforms,
but it's not coming out of plan assets as it once was. "
Up to a point, recordkeepers would resist adding DCIO
funds, but as minding participants' interests became more
carefully enforced by advisers and
large plan sponsors, " recordkeepers
wanted strong options to offer, and
they recognized that part of their role
is promoting best-in-class outside
managers to their platforms, " says Lee
Freitag, head of investment strategy for
Retirement Solutions at Northern Trust
Asset Management, in Chicago.
Sway Research has been a diligent
observer of the defined contribution
scene-including the DCIO market-
since 2004 and, from its samples, estimates
the size of the entire DCIO asset
base. By Sway's measure, between
2010 and 2020 the DCIO sector grew
at an average 9.5% annually, steadily
outpacing the 7.5% asset growth for
the DC market as a whole. It estimates
that, as of last year, DCIO's share of
total DC assets had risen to 54%-or
$5.3 trillion-up from 49% in 2010. In
the aggregate, that is over $3 trillion of
incremental assets over 10 years. Sway
predicts a 56% share by 2023.
In such a growing market, the ranks of the top asset
Retirement Partners, in Pearl River, New York. " Many of
them are in target-date funds, on which we conduct a separate
study for clients every three to five years.
" The idea of recordkeepers keeping DCIO funds off their
platforms has gone away, " Delaney adds. " If we find funds
that fit with a client's model, the recordkeeper pretty much
has to go along with that and add those funds. "
In the 2020 edition of the DC survey from financial advi " Advisers
and
sponsors are
so conscious
of the risks in
sory firm Callan, 75% of plans offered DCIO target-date
funds, up from 31% in 2010. " Ten years ago, if a plan was
on board with a large recordkeeper, it often automatically
would use the proprietary target-date
funds, " says Jamie McAllister, senior
vice president in Callan's Chicago office.
using proprietary
funds, and know
they need more
evidence to
validate including
recordkeepers'
funds. "
management firms reaching into the DCIO market has
been fluid. In PLANADVISER's own annual surveys, just six
managers in the top 10, as of first quarter 2013-viz., BlackRock,
T. Rowe Price, State Street Global Advisors, PIMCO,
Invesco and J.P. Morgan-remained so by first quarter 2020.
A Series of Small Shocks
The two seismic shifts in the DC market and in asset management
overall-target-date funds (TDFs) replacing portfolios
of individual funds and active management giving way to
low-cost passive-were also transmitted to the DCIO sphere.
DCIO managers' share of target-date funds has risen
sharply. This growth is to be expected given that these
are most plans' default investment and gather the bulk of
contributions. But the philosophies of sponsors and their
advisers in selection of the funds goes well beyond cost, to
include investment suitability and risk control. " Today is the
first time we're seeing people retire without defined benefit
[DB] plans, " notes Barbara Delaney, principal and founder of
StoneStreet/Renaissance (SS/RBA), now a member of Global
" But fast forward, and those target-date
funds might not fit the plan's demographics:
Maybe they're too expensive,
maybe they're passive and not active.
With an increased level of fiduciary
duty and responsibility, sponsors are
looking more closely and offering funds
more geared to their population, and
that might be a nonproprietary fund. "
" Recordkeeper
considerations
are
a big part of our target-date discussions
with clients, " says Ed McIlveen,
chief investment officer (CIO) at Francis
Investment Counsel, in the Milwaukee
suburbs. " Sponsors and advisers have
to demonstrate that they're making
prudent choices in the best interests of
participants, and you can't accomplish
that with inferior investment products,
regardless of their impact on total cost. "
In the separate tussle between active
passive
management
and
investing,
active still holds a lead in DCIO, but that is steadily slipping.
Sway Research says that at the end 2019, 44% of overall DCIO
assets were in passive forms, up from 38% in 2015.
Of course, not all advisers are going with that flow. " I don't
want to strive for mediocrity, and that's what you get with
passive, " says Delaney. " You should strive for an 'A,' not a 'C.'
" My clients are saying that, in a post-pandemic world,
maybe [having passive funds] is not so smart, " she adds, referring
to early last year's reminder that markets can go very
wrong in a hurry. " You really want someone to be 'driving the
bus,' particularly in target-date funds. How do you control for
the risks when people are approaching retirement, and then
how do you make those assets last a lifetime? Sponsors are
recognizing that indexing everything can be dangerous. "
Critical Path
Advisers approach the economics and decisions regarding
DCIO vs. proprietary funds in several ways. " Work for a
new client would typically start with choosing a recordkeeper,
and an analysis of the target-date funds as a second
step, " says Greg Adams, consultant at Fiducient Advisors,
28 | planadviser.com May-June 2021
http://www.planadviser.com
PLANADVISER - May/June 2021

Table of Contents for the Digital Edition of PLANADVISER - May/June 2021
