Unbundling Investments

Why DCIO plays a prominent role in today’s retirement plan construction
Tom Skrobe

The role of the investment-only provider has emerged to be a very important one over the past 10 to 15 years across the industry, affecting recordkeepers and platform providers, plan sponsors and, of course, retirement plan advisers. Tom Skrobe, head of distribution within BlackRock’s U.S. Defined Contribution Group, discussed the role of defined contribution investment only (DCIO) in today’s retirement plan market with Alison Cooke Mintzer, editor-in-chief of PLANADVISER.

PA: What is the importance of being defined contribution investment only in today’s retirement plan industry?

Skrobe: Investment-only is a relatively new concept in defined contribution (DC) because plans were bundled with one investment provider. In many cases, that limited a plan sponsor’s or adviser’s investment choices. Investment-only providers enable advisers, sponsors and participants to access best-of-breed investments and products without compromise.

It also has resulted in strong partnerships with platform providers. Investment-only providers working together with platforms offer benefits for participants and sponsors because of the knowledge, expertise and value-add that all those firms bring together.

PA: As a DCIO firm, do you see an additional opportunity to support retirement plan advisers?

Skrobe: Absolutely. The way retirement plan investment menus are built is very different than the traditional asset-allocation portfolio for a retail client. There’s a lot of noise out there and our job is to help advisers cut through the clutter to simplify the process.

We can help advisers and their clients understand their fiduciary obligations and exposures, as well as how that relates to their investment menu design and helping participants make the appropriate choices within those menus.

Another part of our job is to help advisers get ahead of what’s going on in the market. That’s why we recently conducted a research study to understand advisers’ views and challenges on target date funds (TDFs). TDFs are the fastest-growing component of the DC market, and by 2020 they are projected to grow to over $3 trillion, accounting for the majority of DC plan assets. There’s a significant opportunity for advisers to consult with plan sponsors on their TDF decisions.

But here’s the challenge: not all TDFs are created equal. Different funds have very different objectives and allocation mixes when they reach their target date. That’s one reason why 50% of the advisers we surveyed said they need better evaluation tools and monitoring information. Not only do they want to help their clients understand the differences between TDFs, they felt the tools that are available are often biased to a specific investment manager.