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In the first three years after debuting the PLANADVISER Defined Contribution Investment Only (DCIO) Survey, in 2012, investment managers reported fairly strong increases in assets each year. This trend changed in 2015, however, as the assets of the 38 participating DCIO investment managers remained practically flat, with an increase of just $13.9 billion (0.4%) to end the year with a total of $3.1 trillion in assets. This is in stark contrast to the year before, when DCIO assets surged 33%—from $2.3 trillion at the end of 2013 to $3.1 trillion by the close of 2014. Hearts & Wallets, however, found that DCIO sales were strong in 2015, with 70% of 30 DCIO asset managers it surveyed reporting positive net sales.
DCIO fund allocations have remained stable, with 50% of assets in stocks. Interestingly perhaps, considering asset-allocation funds’ prevalence in fund lineups, only 19% of DCIO assets are in such funds. Another 17% are in bonds, 9% are in stable value funds, and 2% are in money market funds. Although there was little year-over-year change in the percentages of assets allocated by investment type, there has been a marked movement away from equities and into stable value; three years ago, stocks accounted for 60% of DCIO assets, and stable value for 4.6%.
Likewise, DCIO assets by vehicle have also remained unchanged from the year prior. A full two-thirds, 66%, of DCIO assets are in mutual funds, followed by separate accounts (18%) and collective investment trusts (CITs) (16%). And despite much recent ado about adding exchange-traded funds (ETFs) to investment lineups—particularly at a time when class-action lawsuits are targeting plan sponsors over fees—ETFs are nowhere to be found among DCIO allocations.
The largest DCIO manager in the survey is BlackRock, with $630.2 billion in assets; second is TIAA Global Asset Management – Nuveen, with $451.0 billion; and Capital Group/American Funds, with $274.3 billion, is third.
DCIO managers have selling agreements with an average of 62 recordkeeping platforms, down substantially (-18.4%) from 76 in 2014. The firm with the largest number of recordkeeping selling agreements is Capital Group/American Funds, with 277, followed by Janus (225), Lord Abbett (126), American Century Investments (114), Ivy Investments (107) and AB (105).
A recent report from Cerulli Associates found that even DCIO firms satisfied with their current retirement-specialist presence are rethinking strategies to cultivate the next generation of adviser relationships. Cerulli found there are currently only 4,200 advisory practices that specialize solely in retirement—a mere 5% of the total number of adviser practices in the nation. This will prompt more DCIO providers to work with practices that derive less of their growth—that is, anywhere between 15% and 49% of their revenue—from defined contribution (DC) plans.
DCIO managers continue to provide a wide variety of services to advisers who guide plan investment committees in selecting investment options—including the default investment for automatically enrolled participants—for their DC plan menus. The most common such service last year was support for due diligence meetings (87%), on exact par with the year prior. Second most common was assistance with investment committee meetings (76%), up substantially from 2014, when it was the sixth most popular offering, cited by 65% of DCIO providers. The third most common was assistance with practice management (74%), followed by research (71%), conferences (68%), training for DC plan sales/service (58%), plan benchmarking (55%) and target-date evaluation tools (50%).
The three least popular services were access to Employee Retirement Income Security Act (ERISA) counsel and sponsorship of designations/certifications (both 24%).