2013
DCIO Survey

When it comes to DCIO providers, investment performance is not the only aspect to consider

PLANADVISER’s second annual Defined Contribution Investment Only (DCIO) Survey represents nearly $2 trillion in DCIO assets as of the end of this year’s first quarter. This is an increase of more than $164 billion (9.5%) versus year-end 2012 total DCIO assets, an impressive leap of $641 billion (52%) versus year-end 2011 and a 70% increase over year-end 2010 DCIO assets.

While the survey does not claim to represent the DCIO industry in its entirety, it includes 36 providers—12 more than last year’s 24—and gives insight into a fair representation of market participants in terms of their size, top DCIO funds offered and their portfolio managers, as well as the products and services that DCIO providers offer to financial advisers who sell into and service the defined contribution (DC) market.

More than 70% of the DCIO assets represented in the survey are invested in mutual fund vehicles, another 13% in collective trusts and 16% in separate accounts. When analyzed by investment category, 60% of the DCIO Survey assets are in stocks, 16% in bonds, 5% in stable value funds and 2% in money market funds. Sixteen percent of DCIO assets is in asset-allocation funds, which include target-risk and target-date funds (TDFs), as well as balanced funds. The largest single DCIO fund in the survey is the BlackRock LifePath Target Date Fund, with $77 billion in DCIO assets, followed by T. Rowe Price’s Target Date Series at $38 billion. Columbia Acorn Fund’s Charles P. McQuaid is the survey’s longest-tenured portfolio manager, starting at the now $8.2 billion fund in 1978.

In terms of products and services that DCIO providers make available to financial advisers, due diligence meetings top the list with 75% of providers offering these. Two additional services are offered by more than 70% of providers: conferences for advisers (75%) and practice management (72%). Research is offered by 65% of providers, and 56% offer training for DC plan sales/service and investment committee meetings. Less than half of DCIO providers offer the following services to financial advisers: plan benchmarking (50%), 401(k) plan lead-generation (39%), access to Employee Retirement Income Security Act (ERISA) counsel (25%), sponsorship of designations and certifications (19%) and compliance support (19%).

Eighty-five percent of DCIO providers in the survey indicated they have a sales team dedicated to the financial adviser market. On average, DCIO providers report having eight salespeople focused on financial advisers, five salespeople focused on institutional and six DCIO sales support staffers. Additionally, this year’s DCIO providers have, on average, selling agreements with 65 defined contribution recordkeepers—significantly more than last year’s average of selling agreements with 50 recordkeepers.

Again this year, survey respondents were asked to identify their greatest challenges in the DCIO market, as well as the best opportunities going forward. This year, the biggest challenge, indicated by 41% of providers, was “reporting of registered investment advisers (RIAs) from recordkeepers,” and nearly as many (38%) indicated that “gatekeeper access and getting on the short list” was their main concern. Thirty-five percent of DCIO providers said that target-date funds are their biggest challenge. On the other hand, custom target-date funds were seen as the best opportunity, identified by the most providers (27%), followed by 16% of DCIO providers that see the biggest opportunity in “providing thought leadership around the key needs of sponsors, participants and their advisers.”