PLANA
DVISER’s 2014 DCIO Survey

DCIO providers’ assets and services flourish

PLANADVISER’s third annual Defined Contribution Investment Only (DCIO) Survey represents more than $2.6 trillion in assets as of the end of this year’s first quarter. This is an increase of more than $78 billion (3.1%) from total DCIO assets of $2.56 trillion at year-end 2013; a $492 billion leap (23%) from assets of $2.14 trillion at year-end 2012; and a remarkable $1.2 trillion rise (83%) from assets of $1.44 trillion at the end of 2011.

The survey does not purport to represent the entire DCIO industry, but it includes data from 36 investment managers and gives a look into the size and growth of market participants, the types of funds they offer, as well as the products and services that DCIO providers make available to retirement plan advisers.

The usage of mutual funds has decreased slightly since last year, with 63.9% of DCIO assets invested in the funds, down from 70.5%. Investment vehicles more attractive to larger plans, such as collective trusts and separate accounts, have gained popularity; 18.4% of assets are invested in collective trusts and 17.7% in separate accounts, up from 13% and 16%, respectively, last year.

In terms of the types of investments used, 55% of assets are invested in stocks (down from 60% last year), 16% are in bonds (on par with last year), 8% are in stable value (up from 5%), and 2% are in money market funds (equal to last year). Assets in allocated funds, including target-date, target-risk and balanced vehicles, rose from 16.7% last year to 19% this year.

The largest DCIO fund in the survey is the BlackRock LifePath Target Date Fund, with $109 billion in assets, followed by the PIMCO Total Return Fund, which has $101 billion.

Royce Pennsylvania Mutual Fund’s Chuck Royce is the longest-tenured DCIO portfolio manager in the survey, having started at Legg Mason’s $2.7 billion fund in 1972.

In terms of the products and services that DCIO providers make available to financial advisers, due diligence meetings top the list, with 83% offering this service. Next most common is research, offered by 78% of DCIO providers. This is followed by adviser conferences and practice management (75% each), defined contribution (DC) sales and service training (67%), attendance at investment committee meetings (64%), plan benchmarking (53%), and lead generation for 401(k) and other types of qualified plans (42%).

Ninety-four percent of DCIO providers have a sales team devoted to the financial adviser market; on average, this consists of seven salespeople. Additionally, the providers average five salespeople focused on the institutional market and six DCIO sales support staff. The providers have entered into an average of 79 selling agreements with recordkeepers, up from 65 last year.

Provider respondents were asked, once again, to identify their greatest challenges—as well as the best opportunities—in the DCIO market going forward. This year, the biggest challenge, cited by 58% of providers, was “target-date funds” (TDFs), and nearly as many—54%—indicated that “differentiation from the competition” and “reporting of RIAs [registered investment advisers] from recordkeepers” were their greatest challenges. Thirty-nine percent of DCIO providers said that investment menu consolidation is their biggest challenge.

On the other hand, again this year, custom target-date funds were seen as the best opportunity, identified by the most providers (27%), followed by “the smaller, or adviser-sold, plan market,” cited by 23% of providers.

Art by Christian Northeast