The Markets November 29, 2021

Asset Managers Weigh In on DC Plan Investment Trends

They foresee growth in the use of CITs, retirement income products and ESG investments.

Reported by


As registered investment adviser (RIA) aggregator firms continue to acquire smaller players in the defined contribution (DC) space, investment managers are starting to take notice of their growing influence in deciding DC plan investments, a recent study suggests. There has been a shift in distribution dynamics as many RIA firms look to centralize their investment analysis and research.

According to Cerulli’s “U.S. Defined Contribution Distribution 2021: Uncovering Investment-Only Distribution Opportunities” report, many aggregator firms have taken an institutional approach to their investment decisionmaking process, centralizing the due diligence and investment analysis at the home-office level. By doing so, they have taken much of the investment research and analysis responsibilities out of the hands of the firm’s field advisers, enabling them to spend more time helping plan sponsors with their plan design, participant education and communications, and recordkeeper oversight.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

In addition to centralizing the investment research function, some RIA aggregator firms are leveraging their scale and investment expertise to create their own 3(38) investment manager open-architecture, white-label investment products and solutions. The report notes that 66% of managers believe aggregators have become a primary influencer in deciding DC plan investments in the $25 million to $250 million segment, and that rises to 68% for the $250 million to $500 million range.

“Managers that understand the investment decisionmaking process, adviser concerns and potential platform changes on the horizon will be well-poised to capture plan assets controlled by RIA aggregators,” says senior analyst Shawn O’Brien.

CITs Poised for Growth

Key DC plan decisionmakers, including advisers and consultants, continue to favor collective investment trusts (CITs) due, in large part, to their relatively low-cost structure and pricing flexibly, the Cerulli report notes. The firm recommends that target-date managers strongly consider CITs for their future target-date series launches.

The vast majority (92%) of managers currently offer a target-date series in a CIT, and 2021 has seen the use of CITs grow in place of other, traditional funds as the retirement vehicle of choice. Nearly all (97%) CIT providers cite lower costs as a very important factor when developing their CIT products. Other factors considered in development and distribution of CITs that managers found very important include having an additional vehicle offering for the existing investment strategy (78%), the ability to negotiate fees (72%), the ease of distribution (47%) and the speed of product development (38%).

In recent years, many CIT providers have lowered their investment minimums and, in certain cases, waived them altogether. Cerulli’s report finds that those with low or no investment minimums are more tenable investment options for smaller plans and advisers and could help promote stronger adoption down market.

Retirement Income

Retirement income remains a prime area of focus for asset managers and plan fiduciaries, as industry experts note there is no “one-size-fits-all” retirement income product or solution. Asset managers believe target-date funds (TDFs) with a retirement income vintage are most likely to capture the greatest new flows for in-plan options (38%), followed by a dynamic product (22%). Dynamic qualified default investment alternatives (QDIAs) that start participants off in an accumulation-focused vehicle—e.g., TDFs—before automatically transitioning them into a managed account offer participants the benefits of personalization as they approach their retirement years.

Slightly less than a quarter (21%) of target-date managers offer a target-date series with a guaranteed income component. Providers note that some plan sponsors are beginning to adopt TDFs with a guaranteed income component, but adoption is still far from widespread, Cerulli says.

Most defined contribution investment-only (DCIO) asset managers (63%) indicate that greater interest in retirement tiers will have a positive impact on their business. Plan sponsors looking to implement retirement tiers are likely to exhibit an interest in helping their retired employees navigate the retirement phase of their lives and may look to offer a suite of customized and off-the-shelf retiree-focused investments.

ESG Investing

A shift in political attitude has placed environmental, social and governance (ESG) investing back in the spotlight, Cerulli notes. Further guidance from the Department of Labor (DOL) may help plan sponsors and their fiduciary partners navigate their decisionmaking process as they implement ESG investment products.

Cerulli found that 65% of retirement specialist advisers believe ESG products will gain broader adoption in the DC market in the coming years, and 67% of asset managers believe interest in ESG investing will have a positive impact on their DCIO business, up 20% from last year. Despite a proliferation of ESG investment products, DC plan fiduciaries have historically been hesitant to offer ESG-branded investment products.

Several TDF managers indicate they plan to incorporate ESG principles into their investment process moving forward. The Cerulli report notes that many DC-focused asset managers run ESG screens on their investment products and third-party subadvisers regardless of whether their investment product is ESG-branded.

Retirement specialist advisers, on average, expect to add an ESG investment option to the plan menu for nearly one-quarter (22%) of their DC plan clients. The new, softer DOL stance on including ESG investments in plans covered by the Employee Retirement Income Security Act (ERISA) will likely help ease barriers to adoption within the ERISA-covered DC space, Cerulli notes.
Data & Research November 24, 2021

Three Economic Reasons to Give Thanks

With the year winding down, LPL Financial’s chief market strategist reflects on what investors have been grateful for over the past 11 months, from the strong U.S. consumer to the soaring stock market.

Reported by

There are less than six weeks left in 2021, and it has been a strong year for stock market bulls. In fact, in many ways it could go down as one of the best years ever for the markets. This week, in honor of Thanksgiving, Ryan Detrick, LPL Financial chief market strategist, offers three reasons for investors to be thankful, from the stock market to the future of the economy.


Stock Market Returns

The S&P 500 Index is up approximately 25% for the year, which currently ranks it as one of the best years ever. Although this year hasn’t been perfect, Detrick points out that earnings have come in substantially better than expected, with 2021 S&P 500 earnings expectations up nearly 25% from where they were at the start of the year, helping to justify stocks’ current levels.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

If the S&P 500 were to end at its current level, it would rank as the index’s 15th best year since 1950. In fact, the S&P 500 is on pace to be up at least 15% for three consecutive years for only the second time in history, exceeded only by a streak of five in a row in the late 1990s.

This year has also seen the second most all-time highs ever for the S&P 500. 2021’s 66 all-time highs put it above the 65 new highs in 1964 and are second only to the record 77 new highs in 1995. Although Detrick says he believes it is unlikely the index will set a new record for all-time highs in 2021, there is a potential for further gains ahead through year-end.


The U.S. Consumer

The country has not been able to put COVID-19 fully in the rearview mirror in 2021 as many had hoped. However, the most powerful engine in the US economy—the consumer—has remained remarkably strong, Detrick says. Despite the lingering effects of the coronavirus, inflation fears and the absence of stimulus checks, the U.S. consumer continues to spend. Last week was a stark reminder of that, as October retail sales showed the strongest month-over-month growth since March, besting economists’ expectations across the board. Retail sales have now climbed in six of the past eight months, according to the Commerce Department, so far avoiding worries that consumer demand would drop off without additional fiscal stimulus.

Results from corporate America paint a similar picture. Retailers, including Home Depot, Lowe’s and Target, all reported earnings last week that came in above analysts’ expectations. Detrick notes that the consumer discretionary sector is tracking to a 58% year-over-year increase in earnings for 2021, and that strength could continue into next year and fuel an increase in 2022, greatly exceeding the expected earnings growth rate for the broader market.

It is important to note, however, that consumer confidence has fallen since the summer and has yet to recover to pre-pandemic levels. Detrick says it would be more ideal to see those measures turn higher in the near term, but, overall, it is more important to watch what consumers are doing with their money, rather than how they feel. Excess savings, rising wages, a strong wealth effect from stock market gains and high housing values should help to fuel strong spending this holiday season and into next year.


Looking to 2022

Thanks to a combination of continued healthy earnings, adaptable U.S. corporations and workforces, a solid U.S. consumer, and the tailwinds of both monetary and fiscal policy, many experts agree that stocks are expected to continue doing well in 2022, outperforming bonds once again.

The third reason to be thankful, Detrick says, is a big year for stocks historically means the following year could be strong as well. In fact, the past nine times the S&P 500 was up at least 20%, the following year saw positive returns. He says his calculations show that the year after a 20% gain has averaged a solid 11.5% return and been higher 16 out of 19 times. After the returns of the past few years, most investors would probably welcome an 11.5% return in 2022.

Detrick acknowledges that things haven’t been easy over the past 20 months but adds that investors should be grateful for how strong 2021 has been. The U.S. consumer is the biggest key to how the economy will do going forward, and he predicts consumers will surprise to the upside and help drive solid growth next year.

«