Capital Markets
Much of the spending increases in the defined contribution investment-only (DCIO) market are being directed at new sales force hires and marketing programs designed to support plan advisers, according to a study by Sway Research. Asset managers are on track to increase dollars spent on DCIO sales and marketing efforts by an average of 28% in 2008.
Chris J. Brown, Principal of Sway Research, said that “some of the increase in spending is in response to mounting competition from other asset managers as well as increased flows into proprietary target-date portfolios, all of which are placing greater pressure on DCIO executives to meet aggressive sales goals.” Nearly one-third of the 14 managers surveyed by Sway for this study did not expect to meet 2008 DCIO sales goals, even before the fall credit crisis depressed the U.S. equity markets.
The growth of target-date funds already has begun to affect flows from DC plans into investment-only products. According to the gatekeepers from nine leading DC platforms that took part in a survey for the Sway study, assets under administration invested in target-date portfolios will increase from an average of 12% to 31% by 2015. The Sway report says that both DC platform gatekeepers and retirement advisers overwhelmingly use target-date portfolios as a qualified default investment alternative (QDIA) option.
The study found a significant gap in DCIO productivity among investment management firms, with leading firms generating more than $1 billion of sales per salesperson—four times as much as firms at the low end of the range. “This suggests that, even without another increase in spending in 2009, many managers are in a position to enhance DCIO productivity and profit margins by improving the ways that sales and marketing resources are being used,” Brown said.
More information about the study, “Best Practices in DCIO Sales and Marketing: Harnessing Value-Add Programs To Build Brand with DC Platforms and Intermediaries,’ is available at www.swayresearch.com.