DCIO Most Profitable Platform Market For Asset Managers

The defined contribution investment-only (DCIO) market offers dramatically higher profit margins for asset managers than those found in other platform markets, and firms will be growing their personnel in these markets during 2008.

The study by Sway Research LLC, titled Aligning an Organization for Platform Sales Success, found that asset management firms are earning average margins of 25% on DCIO business versus roughly 18% in markets such as mutual fund wrap and sub-advisory and only 12% on the separately managed account business (SMA) business, which also includes multiple-discipline products and UMA platforms.

In addition to the higher margins, asset managers produced greater gross sales relative to assets under management, on average, in the DCIO market than other platform markets in 2007, Sway found.

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

According to Chris J. Brown, principal of Sway Research, “despite experiencing a combination of upward pressure on recordkeeping fees and downward pressure on fund expenses, asset managers are still generating sizable profits on DCIO business, largely as a result of low distribution costs, driven by the small sales forces needed to generate DCIO flows.”

The survey, which was based on interviews with executives from asset management firms, predicts that sales staff will grow in 2008. The growth in both margins and gross sales has been recognized by senior management, which has, in turn, raised DCIO sales goals, according to Sway. Therefore, DCIO managers would like to increase their sales staff with experienced personnel to help them reach these goals, while also working to retain the talent currently in-house.

Part of this goal is evidenced in the fact that many asset management firms have been making significant alterations to organizational structures as a means to better integrate sales, marketing, and operational functions for platform businesses.

“All of this is driving up compensation levels for sales people fortunate enough to possess a combination of ERISA and investment product knowledge,” adds Brown.

The study report provides benchmarks for key distribution components, such as sales force headcounts, sales and assets generated per head, and compensation levels and structures. It also contains information about organizational structures within DCIO groups at asset managers. For more information, visit the company’s Web site at www.swayresearch.com.