Data & Research October 29, 2015

Fee Pressures Put the Squeeze on DCIO Market

The demand for low fees will continue to cut into actively managed funds in portfolios.
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The defined contribution (DC) market is strong and seems to be growing, with positive net sales for the majority of firms surveyed, according to Hearts & Wallets’ ninth “The State of DCIO Distribution” study. But just below the surface all is not calm.

In the first half of the year, 70% of the 30 asset managers surveyed recorded positive net sales—a marked improvement over 2014, when only 54% of managers had positive net flows. However, 2014 was a historically bad year. Defined contribution investment only (DCIO) sales improvements have not reached levels seen prior to 2013, when 80% or more of managers regularly produced net sales in the black. Hearts & Wallets projects the DCIO market will grow from $3 trillion today—47% of the DC market—to $4.1 trillion (51%) in 2020.

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The demand for low fees is going to cut into actively managed funds in portfolios, Chris J. Brown, Hearts & Wallets partner and cofounder, tells PLANADVISER. One-third of mid-tier consultants said they plan to increase DC plan placements of passively managed large-cap U.S. stock funds, versus just 14% who plan to increase placements of similar actively managed offerings, Brown says.

On the flip side, 16% of mid-tier consultants said they plan to decrease placements of actively managed large-cap U.S. stock funds, five percentage points more than the number of consultants who said they’d decrease placements of passively managed stocks using a similar strategy.

“So the trend is for more placements of passively managed products and less inclination to decrease placements of them as well,” Brown explains. “This suggests many of these intermediaries will be looking to replace active portfolios with passive ones, which is consistent with the past few years of surveys.”

NEXT: Passive management is trending

Brown notes that it is not just advisers who are moving more toward passive strategies. “It’s also being driven by recordkeepers that are concerned about having higher-cost actively managed portfolios in the plans they administer,” he says. According to Hearts & Wallets’ study, one in five (19%) mid-tier consultants agrees with the following statement: “In the past year, I/we have been approached by recordkeeping platforms about replacing active options with passive ones in the plans we service.”

Letting asset managers know when their funds are selected for a DC plan menu will become critical for retirement plan advisers, Brown says. “The average asset manager can only track 46% of DCIO sales to the source,” he explains. As advisers use more flat-fee arrangements and are no longer the listed broker of record on the plan, it will become even more difficult for asset managers to know who uses their products.

They won’t be able to provide the appropriate level of sales support and any value-add that could help an adviser maintain and expand his DC business—valuable resources to an adviser, Brown says. “But only if they know who you are and that you’re doing business with them.”

A dedicated DCIO sales and marketing effort will continue to have a place in managing workplace savings, Brown says, but “today the stakes are higher, product requirements stricter, and sales more difficult to earn. To really compete in the DCIO market, portfolio fees must be kept at or below median simply to make it past initial screens—and that is only the price of entry.”

“The State of DCIO Distribution” is Hearts & Wallets’ annual competitive landscape and benchmarking study on the defined contribution arena, which provides benchmarks for asset managers as well as feedback from plan advisers. Hearts & Wallets surveyed 30 asset managers with about $900 billion of DCIO assets under management and about 100 retirement plan intermediaries with more than $60 billion of DC assets under administration.

Diversions October 29, 2015

The Workplace Has Plenty of Trust, Inefficiency, Lack of Training

Employees feel surprisingly trusted but inefficiencies abound in how American workers go about their workday.
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Nine out of 10 full-time U.S. employees believe their boss trusts them to get the job done, no matter where and when they work. But amid this tech-aided flexibility, inefficiencies abound in the way workers use technology and communicate, according to a study commissioned by Flex+Strategy Group/Work+Life Fit and co-sponsored by Citrix.

Employees were evenly split between where they said they do most of their work. One-third work remotely, 34% work in a cube or open-office environment and 28% in a private office. Men continue to represent the majority of teleworkers—60% in 2015—and the percentage of women increased significantly, to 39%, from 29% in 2013.

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Even while workplace patterns and work habits are changing, the training and infrastructure to support flexible work arrangements is lagging. Video or Web conferencing and project management technologies are increasingly common, but used infrequently.

Nearly 60% of respondents say they frequently use email, Word documents or spreadsheets to update colleagues about work progress and performance. Slightly fewer (55%) meet in person and 43% use the phone. Generation Y (59%) and Generation X (58%) were more likely than Baby Boomers (46%) to frequently meet in person to keep others informed.

Those who work remotely were more likely to use the phone than those who work in a cube or open office. Meanwhile, those onsite were more likely to use email, Word documents or spreadsheets. Employees were inconsistent in where they saved and stored work across company and personal platforms.

Almost seven out 10 employees feel the increase in workplace technology has made it easier to collaborate and communicate with colleagues, and more than half of respondents said it has made it easier to work flexibly. More than one in four (28%) said the increase in technology has created more work, and the nearly one-fourth that noted this feels a “bit like Big Brother is watching you,” with men significantly more likely than women to voice that view.

In 2015, almost all full-time U.S. employees had some type of work life flexibility, unchanged from 2013 and 2011. Most of that flexibility is informal, with six out of 10 making occasional changes in how, when and where they work, an increase from 2013. Employees feel increasingly positive with a majority (56%) that noted their employer still has a strong commitment to work/life flexibility.

Among other findings:

  • Eight out of 10 employees have never used project management software and two-thirds have never used video/web conferencing.
  • Almost half (47%) received training or guidance to help manage their work life flexibility in 2015, but more than half (52%) remained on their own with no instruction.
  • Those who use flexibility informally received less training than those with formal flexible work arrangements.

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