Asset Managers Gear Up for DCIO Expansion

Asset managers are adding staff and increasing budgets to capture the fast-growing defined contribution investment-only (DCIO) market, as the competition for DCIO assets is getting intense, a new research report suggests.

A news release from Sway Research said DCIO success is more difficult because of the continued shift of DC assets into proprietary target-date products and increased competition from managers of all sizes.

According to the study, DCIO now accounts for an average of 23% of firm-wide net sales, despite being a small piece of firm business when measured by staff and budget levels. Even the largest asset managers generally have fewer than 20 full-time employees serving the DCIO market.

However, DCIO staff levels are expanding fast. The 23 asset managers surveyed added an average of 1.5 full-time sales and marketing professionals to support DCIO in the past year, and many plan to add additional staff in the months ahead.

Sway found that the average DCIO sales and marketing budget will increase by 17% in 2010, topping $4 million for the first time. The average Tier 1 DCIO manager (with more than $10 billion of DCIO AUM) will spend more than $1 million on DCIO-related marketing in 2010.

“Increases to DCIO marketing budgets illustrate the increasing importance of DCIO to overall firm sales efforts, and reflect the difficulty of gaining and maintaining a foothold in the DCIO space,” said Chris J. Brown, principal of Sway Research, in the news release. “The flow of assets to proprietary target-date funds and increased competition mean that asset managers must develop a clear strategy for attacking the DCIO market. This includes a focus on key platforms and top-producing retirement advisors.”

Nearly one-third of the 13 DC platform gatekeepers surveyed predict that their firm’s share of IO assets will decline over the next three years as a result of increased flows to proprietary target-date portfolios, Sway said. Despite this, IO share of the overall DC market continues to increase and will top proprietary share by the end of 2011. Sway estimates that there is just under $2 trillion in DCIO assets today, up from about $1.7 trillion one year ago.

The report is based on surveys and interviews with 23 DCIO sales representatives, 13 DC platform representatives, and more than 100 retirement-focused advisers.