As head of Retirement Link Sales at J.P. Morgan Asset Management, Charlie Cote is closely involved in the conception and execution of the firm’s retirement plan sales strategies.
Currently at J.P. Morgan, he explains, the retirement team is segmented into three sales divisions. Cote himself heads up the bundled sales team that stands at 18 people, split evenly between the field and the sales desk. He tells PLANADVISER he joined the firm less than two years ago, after spending some time at American Funds in a variety of retirement wholesales and management roles. Before that he was with MassMutual focusing on the mid- and large-sales team, and prior to that, he was with Principal Financial Group, focusing on mid-size and small-market sales.
Given that diverse background, over the course of his 21-year career Cote has seen a lot of industry change. It is easy for him to say, however, that in the past 10 to 15 years no single piece of legislation, judicial decision, regulation or private market development has rivaled the impact of the Pension Protection Act of 2006, which popularized both automatic enrollment and the choice of target-date funds and managed accounts as safe-harbor default investments.
“Today we have 70% of flows in the industry directed to target-date funds,” Cote observes. “Most of the industry research you will see will lead you to believe that even in just the next two or three years, we will reach the point where half of the assets in the DC space will be held within target-date vehicles. We are talking about a fundamental shift in just 10 or 15 years in a $7 trillion marketplace. It has been a remarkable development in a short time.”
A big part of the momentum for TDFs, Cote says, is tied to automatic enrollment into TDFs for new employees, along with the increasing prevalence of targeted re-enrollments of sub-optimally invested participants. These two methods have driven significant numbers of investors from all the generations in the workforce to invest for retirement via target-date funds. Plan sponsors benefit from this trend because, based on the provisions of the PPA, they have broadly established “safe harbor” in relation to investors swept into qualified TDF investments.
“To be frank, plan sponsors value the sense of security knowing that they have invested their participants’ dollars effectively and that they are protected from liability, and this has further added momentum to the DC plan industry,” Cote adds. “Sponsors today can feel confident their investors are going to have better outcomes than if they went it alone, while protecting themselves from liability.”
In the last several years these trends have run into another emerging and very important theme for the DC retirement planning industry—and that is the Department of Labor (DOL) fiduciary rule reform effort. Within Cote’s sphere, the most direct practical result of the fiduciary rule reform effort so far is that sponsors are moving quickly away from funds that have revenue sharing and into funds that avoid revenue sharing, especially R6 shares or “clean” shares.
With all of this in mind, Cote says the time has come to rethink the “conventional approach” to recordkeeper searches, which separates the effort into two phases: “First, choose the recordkeeper. Then, choose a QDIA solution.” As laid out in recent J.P. Morgan research Cote helped to produce, an alternative that may be better suited for today and tomorrow’s recordkeeping/investing market is to “reverse the order of the search.”
“By that we mean selecting the TDF provider first and the most appropriate recordkeeper second,” Cote says. “A different order doesn’t have to change the essential element of any retirement plan search. DC plan advisers who act as fiduciaries must follow a prudent process when helping plan sponsors. Their objective is to help clients choose a strong plan that meets their unique goals.”
Cote concludes that retirement plan advisers and their clients are going through some fundamental changes in the way they do their own jobs and interact with one another, and it will likely be some time before the rapid pace of change lets up.