Based on surveys completed for its recent report, “Retirement Markets 2013: Data & Dynamics of Employer-Sponsored Plans,” Cerulli estimates the IRA market will account for just over 35% of total U.S. retirement assets by the end of 2018.
By assets, Cerulli says the IRA market is already the largest in the retirement planning space, holding about 32.1% of all retirement assets. That compares to about 23.4% for public defined benefit (DB) plans, 8.4% for public defined contribution (DC) plans, 14.4% for private DB plans and 21.7% for private DC plans.
The growth of IRAs is supported mainly by two causes, explains Bing Waldert, a director at Cerulli. First, the lack of widespread use of in-plan retirement income solutions means assets already accumulated in DC plans will shift to IRAs as more Baby Boomers leave the work force and start drawing on savings. Also important to the trend, the research shows, is the continuing loss of market share by defined benefit (DB) plans as more employers look to reduce or eliminate pension liabilities.
Cerulli suggests that financial advisers can take advantage of the trend by focusing on early communication with retirement plan participants regarding withdrawal options. There is also a suggested opportunity for advisers to add value to their services by working with providers that offer post-retirement account drawdown solutions within employer-sponsored DC plans.
Cerulli’s research also breaks down the asset distribution by provider across the DC planning marketplace, finding that Fidelity is the leader by assets in three of the four segments—i.e., for firms with assets between $10 million and $50 million, $50 million and $100 million, and also those with more than $500 million. For firms with less than $10 million in assets, John Hancock Retirement Plan Services is the leader.
Researchers note that some recordkeepers take a more selective approach to the retirement plan business and seek specific plan characteristics, which means they do not respond to all requests for proposals (RFPs) and do not compete equally to win DC assets. Therefore, Cerulli says, recordkeepers (and the advisers and sponsors utilizing their services in retirement planning) should select a few like-minded competitors when benchmarking competitiveness, rather than using the whole market.
Cerulli finds that nearly 50% of existing DC assets are designated as unbundled investment only assets. However, the plans surveyed with more than $1 billion in assets may skew this somewhat, as plans of that size can more easily use nonproprietary assets, whereas it is more cost-effective for smaller plans to use proprietary funds, Cerulli says.
The firm expects proprietary recordkeeping assets to increase in the short term as open architecture has been in place in most segments for a few years—leaving less room for growth on the defined contribution investment only (DCIO) side. In addition, Cerulli finds that target-date assets are still mainly managed by top recordkeepers, meaning continued growth of this asset class will increase proprietary share.
Cerulli finds more than 90% of private DB plans are sponsored by companies with less than 1,000 employees. Mutual fund managers and consultants should be on the lookout for plans of this size that need help implementing liability-driven investing (LDI) strategies that have already been adopted by many larger plans, Cerulli says.
The report also looks at how many advises, by channel, are active in the retirement plan business. Out of all financial advisers, Cerulli estimates about 8% can be called true retirement specialists. The insurance channel has the largest percentage, Cerulli says, because such companies also tend to be recordkeepers, and retirement-related services are a natural extension of other insurance products. Dually registered and registered investment advisers (RIAs) are the next biggest channels.
Information on how to obtain the full Cerulli reports is available here.