Unbundling Investments

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. 

PA: When you look at retirement plan advisers, what do you find their roles are, and how has that changed in helping plan investment committees?

Skrobe: I think the adviser role has changed dramatically. The level of fiduciary awareness has increased for plans of all sizes. One thing the adviser can do is help the plan put in place a formal investment committee process to protect the plan from fiduciary concerns and help them make strong decisions in regards to their investment menu so participants can have successful outcomes in retirement.

So the advisers’ role is to be the DC expert, to tackle future concerns and to organize products and services in a very efficient way. And specifically, they need to be TDF experts—to help plan sponsors understand the difference between funds and how they will impact participants. They need to understand the difference between glide paths and asset allocation, among other things.

BlackRock has the longest history in the TDF space, and we are committed to helping advisers become TDF specialists and deliver better outcomes to participants.

PA: What is the role of BlackRock in helping to make some of these decisions simple for advisers?

Skrobe: Part of it is the solution set we offer. We’ve been managing TDF assets for a long time—since we introduced the industry’s first TDF 20 years ago. Our job is to offer a full range of choices, including index and actively managed mandates, because one size does not fit all.

We recently developed an exciting new program called “TDF Edge,” which helps advisers dig deep into target-date funds and capitalize on consulting opportunities. The program takes advisers through a four-step consulting framework with resources to guide clients through each stage of engagement, from setting plan objectives to establishing criteria for glide path evaluation.

In addition, we plan to launch a tool this fall that will enable advisers and plan sponsors to objectively compare TDFs based on plan goals. We think TDF Edge is a game-changer that will help advisers and their clients make the right TDF decisions for their plan and participants.

PA: What does all this mean for the future?

Skrobe: There’s a lot of responsibility on advisers now to help plan sponsors get it right. And I think that’s good news for those who are well prepared, well versed and specifically are experts in TDFs. The industry is also more transparent. The emergence of the investment-only provider and competition in the DCIO space ensures that plans will have access to the best investment solutions. Couple that with fee disclosure and plan design tools like auto-enrollment and auto-escalation, and I think we’re heading in the right direction.