Editor's note: This story was updated on Aug. 18, based on additional information received from Russell Investments.
All segments of the 401(k) market are going through the early stages of maturity, led by record keepers and broker-dealers, with advisers and asset managers following. Maturity is causing money managers focused on the defined contribution market – the so-called defined contribution investment-only shops — to either hold, fold or double down.
Why? And why should advisers care?
DCIO success can come from owning a record keeper or having viable target-date or index funds. Only one firm, Vanguard, has all three, and, not coincidentally, is the leading DCIO. Firms like Fidelity, BlackRock, T. Rowe Price and American Funds have two of the keys to success, as do relatively new entrants SSgA and TIAA.
Firms like New York Life, BNY Mellon, Natixis, Russell Investments and, in previous years, Eaton Vance, Thornburg and Lord Abbett, have folded or pulled back from the DC market. There are signs some may re-enter, though more carefully.
According to Russell Investments, the firm recently hired industry veterans Jay Breitenkamp and John Uricchio as DC business development directors brought on board specifically because of their experience in working with DC specialist advisers and recordkeeping platforms. The firm said the number of wholesalers serving DC plan advisers is now the same as it was at the start of the year.
Others are holding steady even without any of the three success factors, by selling niche funds like fixed-income or leveraging their retail distribution. That's more realistic than trying to capture IRA rollovers, which few have done successfully, and will only get harder under the Department of Labor's fiduciary rule. These firms include Legg Mason, MFS, Invesco, Neuberger Berman, Franklin Templeton, Allianz, AB Global, Columbia, Goldman Sachs, Oppenheimer and Prudential.
And some DCIOs are doubling down on the DC market because they either have a record-keeper subsidiary — John Hancock, Voya, Putnam, Great-West and Nationwide — or, like First Eagle and Cohen & Steers, they believe they have a unique product. T. Rowe, SSgA and TIAA are making major investments in their DC businesses.
There are about 50 DCIOs, and all feel pressure to do something. With so much money coming from IRAs and 401(k) plans, the retirement market is difficult to ignore. Most of the largest money managers in the world have strong ties to it.
|AB Global||Federated||John Hancock||Pioneer|
|American Century||First Eagle||Legg Mason||Prudential|
|American Funds||Fisher Investments||Lord Abbett||Putnam|
|BlackRock||Russell Investments||Manning & Napier||Ridgeworth|
|BNY Mellon||Goldman Sachs||Nationwide||T. Rowe Price|
|Cohen & Steers||Great-West||Natixis||Thornburg|
|DFA||Invesco||New York Life||Vanguard|
|Eagle Asset Management||Ivy Funds||Oppenheimer||Victory|
What is crystal clear is that firms that do nothing are in the most dangerous position.
Advisers rely on DCIOs for marketing and practice management support and guidance. Only firms with healthy, positive net asset flows can afford to invest and support these activities, as well as hire the best and brightest who know what advisers really want. Pick your partners carefully because they may not be around tomorrow.
Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for arjuna-design' Retirement Plan Adviser newsletter.