PLANADVISER - May/June 2021 - 29

DCIO Assets ($b)
$9,086
Total
DC
Assets
$5,962
DCIO
Assets
$3,290
Dec 2015
Source: 2021 PLANADVISER DCIO Survey
in Windsor, Connecticut. " Based on fund flows, assets and
the number of participants, the recordkeeper will tell us its
fee to recordkeep the plan without any [proprietary] funds.
Then it will offer a decrease in that fee if the plan uses [the
recordkeeper's] stable value account, and other reductions
for using its target-date and index funds.
" Then we do a full QDIA [qualified default investment
alternative] analysis showing four different DCIO targetdate
series, both active and passive, to see the glide paths,
style composition, fees and performance, to narrow it down
to a target-date series that works, " Adams says.
About half of Fiducient Advisors' clients go with the
recordkeeper's funds, and half go out to DCIO managers. " It's
hard to make a decision on expected future performance,
whereas on cost, you know a lower-cost solution is going to
be lower cost in the future, " Adams says. " I don't think I've
ever seen a target-date series become more expensive. "
On the other hand, " We screen target-date funds before
we screen recordkeepers, because we can't let the tail wag
the dog, " says Delaney. " We've been fiduciaries for a long
time, and a target-date search is a whole different process
from a recordkeeper search. "
In their efforts to reduce costs, many advisers seek out
collective investment trusts (CITs), which can operate at
lower fees than mutual funds, owing to different regulation
protocols. Tracking share prices is more difficult for
participants, but advisers see that as a minor hindrance.
" Most participants want to be able to look up a mutual fund,
see the ticker and NAV [net asset value]. CITs are harder to
track that way, " Nydick says. " But if your active manager is
charging you 40 basis points [bps] for a mutual fund, and
there's a comparable CIT at 10 basis points, you'd better
have a good reason for not using it. "
" There has been so much litigation over fees in DC plans
that CITs are a natural place to begin to move assets, " Freitag
observes. The 2021 PLANADVISER DCIO Survey reports 20%
of assets in CITs, up from 13% in 2013.
" CITs in DC plans are a trend in favor of participants
across the board, " McIlveen says. In addition to potentially
lower fees, the minimum investment and plan size required
to participate has declined, and the universe of trusts that
clone mutual funds keeps expanding, he says.
Change in Course?
Are there any forces at work that might accelerate, or
reverse, the steady increase in DCIO managers' share of plan
assets? " Nothing is going to turn it around, " Delaney asserts.
" Advisers and sponsors are so conscious of the risks in using
proprietary funds, and know they need more evidence to
validate including recordkeepers' funds. "
Recordkeepers are unlikely to wage a new battle, McIlveen
says. " Recordkeepers are fully occupied with the
industry's demands of better technology and faster capabilities,
and it feels as though the proprietary investment
component has been moved to the back burner. "
According to Freitag, one factor will definitely spur
further DCIO growth, though its impact is unknown: the
interest in environmental, social and governance (ESG)
strategies. " It tends to come from younger workers, who
might consider a separate ESG fund alongside their investment
in a target-date fund. "
Freitag also points to the momentum gathering behind
multiple employer plans, or MEPs, advanced by the Setting
Every Community Up for Retirement Enhancement (SECURE)
Act of 2019. " There's no agreement on the pace of uptake,
or who's best qualified to manage assets or administer the
plans, but it seems it's going to happen sometime. And, down
the road, that new market should benefit DCIO managers. "
DCIO might also get a boost from the " SECURE Act 2.0, "
currently in the legislative works. " Hopefully it's going to
incorporate the opportunity for 403(b) plans to include CITs
in their investment lineup, " Freitag says. " Not all recordkeepers
are set up to offer CITs, and that, too, would likely
bring a new source of assets to DCIO managers. " -John Keefe
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
$6,086
$4,644
$3,995
$4,482
$4,982
$8,337
$7,468
$7,119
$5,685
planadviser.com May-June 2021 | 29
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PLANADVISER - May/June 2021

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