PLANADVISER DCIO Industry Snapshot

Mutual funds continue to be the investment vehicle of choice among the 42 DCIO providers surveyed, while exchange traded funds are almost entirely avoided.

The 2017 PLANADVISER Defined Contribution Investment Only (DCIO) Survey was conducted in April and May via a detailed online questionnaire, shared with approximately 114 investment firms known or thought to market to defined contribution (DC) plans.

In the end, 42 organizations from across the U.S. agreed to complete the survey in its entirety, offering up a rich snapshot of the DCIO industry.

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Notably, the survey respondents continue to strongly favor mutual funds for their client portfolios, with 64% of DCIO assets invested through mutual funds. This is a 2.7% drop from the previous year, while separate account assets grew 9.5% year-over-year, now representing 20% of client portfolios among survey respondents. Another 16% of assets are invested via collective investment trusts.

Among the survey respondents there was no exchange-traded fund use reported, matching the relative unpopularity of ETFs across the wider defined contribution (DC) investment marketplace.  

According to the 2017 provider data, DCIO firms on average report 70 recordkeeper selling agreements, a 13.2% jump from 2016. Conversely, DCIO firms report a 13.4% drop in the number of adviser-focused salespeople; however the average number of institutional salespeople and dedicated DCIO sales support both rose modestly, 1.1% and 7.1% respectively.  

In terms of products and services DCIO providers are delivering to retirement-specialist advisers, respondents report a 16.8% increase in manager research offerings, a 17.7% jump in training for DC plan sales/service staff, and a 10.9% boost in plan benchmarking services. On the other side, providers report a 22% drop in the offering of target-date fund evaluation tools.

Unsurprising given the big uptick in Employee Retirement Income Security Act (ERISA) litigation, respondents have increased their offering of access to ERISA counsel by 22% compared with last year; there was also a sizable growth in the offering of investment committee meeting support, up 9.1%.

In terms of gross DCIO assets managed, BlackRock, Nuveen and State Street Global Advisors reported the largest client bases. The size rankings continue as follows: T. Rowe Price; J.P. Morgan Asset Management; Wells Fargo Asset Management; PIMCO; and Invesco.

Among the most popular DCIO products stand T. Rowe Price Retirement Date Funds; BlackRock LifePath Target Date Funds; State Street Global Advisors S&P 500; American Funds EuroPacific Growth Fund; JPMorgan SmartRetirement; and AB Target-Date Strategies.

Fastest growing in the sample in terms of new DCIO assets were Janus; First Eagle Investment Management; State Street Global Advisors; Capital Group/American Funds; Legg Mason; and T. Rowe Price.

Retirement Industry Needs to Consider Help for "Gig" and Part-Time Workers

As more employers embrace the new “gig” or “flex” economy, the ranks of part-timers, including independent contractors, will continue to rise. Will employers change their retirement offerings?

The American labor force appears to be undergoing a fundamental shift from traditional single employer, 40-hour work weeks to a more flexible, “on demand” model, according to the report “Part-Time Nation” from The Guardian’s 4th Annual Workplace Benefits Study.

As more employers embrace the new “gig” or “flex” economy, the ranks of part-timers, including independent contractors, will continue to rise. In Guardian’s latest research, employers reported that more than 82% of their workforce are full-time, permanent employees, while 13% are part-time employees (or work fewer than 35 hours) and 5% are independent contract workers. These proportions are consistent with U.S. Bureau of Labor Statistics for the past few years, where the annual average for part-time/contract workers ranges from 17.5% to 18.5%, Guardian says.

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Its research found more employers expect their part-time workforce (including contractors) to grow over the next three years. About one in three employers anticipate growth in part-time workers, while 13% expect a decrease—a net of more than 20% of employers projecting growth in their part-time workforce.

Part-time workers share a number of demographic characteristics. For example, a higher percentage of part-timers are at the two ends of the career spectrum: Younger Millennials (ages 22 to 29) who are just starting their careers and pre-retiree Baby Boomers (ages 60 and older) who are winding down. About one in four part-timers consider themselves retired from their primary career.

And, it’s not just the “gig” economy that creates a long-term financial problem for workers. Among part-timers surveyed, 36% work in the hospitality industry (e.g., waiter/waitress, hotel front desk, tour guide, amusement park attendant), 23% are employed in health care (e.g., nurse, technician, home health aide, therapist) and 20% in retail (cashier, sales associate, customer service) sectors. Another 35% combined work in the construction, financial services and manufacturing industries.

NEXT: Limited access to retirement plans and options for part-timers

Only 32% of part-time workers indicate they have access to an employer-sponsored retirement plan, compared to 69% of full-time employees. In addition, only one-quarter of part-time employees have access to an employer-sponsored medical plan versus 80% of full-timers.

With limited options at work, part-timers turn to other channels for retirement products. Guardian found roughly half have a retirement savings plan, with 16% buying annuities or individual retirement accounts (IRAs) outside the workplace.

Thirty-nine percent of Millennials cite their financial situation as their top source of stress, as do 51% of Generation X and 22% of Baby Boomers.

So, the question becomes: How can we prepare part-time employees for a financially secure retirement?

Speaking at the 2016 PLANSPONSOR National Conference, Tami Simon, global practice leader, Knowledge Resource Center, Buck Consultants, a Xerox company, said, “The higher the percentage of contingent workers grows, the offering of traditional benefits may become minimal.” She speculated that perhaps these “gig” workers will unionize or use associations to create and participate in retirement plans.

Guardian’s Douglas Dubitsky, VP and head of Retirement Product Solutions, based in New York, says if the employer has a part-time employee who can’t participate in the retirement benefit offerings, the individual can contribute to an IRA—traditional or Roth. Roth IRAs let you withdraw your money tax-free at retirement, and Traditional IRAs let you deduct your contributions from your taxable income, he notes. The Treasury Department offers the myRA program available to part-time workers.

In addition, annuities may be a viable option, depending on the specific needs of the individual. Dubitsky notes that a financial professional can counsel the individual about retirement products that can provide guaranteed lifetime income for their fixed retirement expenses, such as annuities, and help them plan for a retirement they can enjoy. "It’s important to build a holistic plan with a professional, who can share the variety of tools that they can leverage for retirement. If an employer can give insights about these offerings, and how a part-time employee can get access to these products, through educational sessions at their offices or information on its website, it would make a difference and leave a lasting impression for that employee," he says.

Dubitsky adds that if an individual has a part-time job at an employer and works part-time as an independent contractor (the employee as employer)—moonlighting income, then this individual is now self-employed and can also contribute to a Simplified Employee Pension (SEP) or a Solo 401(k) plan based on his/her self-employed income. SEP IRAs help self-employed individuals and small-business owners get access to a tax-deferred benefit when saving for retirement. With a Solo 401(K), self-employed individuals and owner-only businesses and partnerships can save more for retirement through a 401(k) plan designed especially for them. “Again, any insights that the employer can provide to the part-time individuals about the options they can explore on their own would be invaluable,” he concludes.

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