While the DC record keeping business is going through massive changes (witness the recent moves by Great-West, especially its acquisition of JP Morgan's record keeping business) and more experienced plan advisors are joining teams, realizing that it is almost impossible to go it alone, the DCIO industry has to adjust.
Ten years ago, more than 90% of sales in all markets were made by blind squirrels and the notion of having DCIO wholesalers in the field, rather than just leveraging the RK sales force, was just evolving.
Fast forward to today. About 50% of new plan sales, and a much greater percentage of assets, are made by experienced plan advisors. There are far fewer record keepers. The home offices of broker dealers are becoming more active. The experienced advisors, and especially the teams, do not need the same service and support that blind squirrels require (even though they subsidize the cost structure in a deflationary world in which the “pie” is shrinking). And with more money going into TDFs, capital preservation funds and index funds, long-only, actively managed DCIOs without a viable TDF strategy are left with fewer assets to forage.
While consolidation is less likely to affect DCIOs than RKs or advisors (since they are appendages of money management firms, most of which have retail distribution), continuing the approach that worked in the past will not lead to the same results in the future. DCIOs now supply 90% of the value-added services to advisors and BDs that they rely on to build, grow and manage their businesses, as RKs hunker down to try to prop up thin margins. DCIO wholesalers have become the trusted business consultants to plan advisors and teams — supplying most of the intellectual capital and marketing support.
In addition, as plan advisors — especially teams and wire houses — move to create customized investment solutions, whether through CITs or 3(38) services, to get a bigger piece of the pie and distinguish themselves, the DCIOs are becoming more important than the record keepers. And with limited sales forces, the DCIO wholesalers are focusing solely on the elite advisors and the teams.
So the old “401(k) road trip” analogy — that the record keepers own the car, the advisors drive and the DCIOs sit in the back and pay for gas — has evolved. The new paradigm, especially for the experienced advisors, is that DCIOs have moved to the front seat — not only providing directions, but also installing a customized engine for the car. For the blind squirrels and the large percentage of small- to micro-market plans, DCIOs must distribute through RKs and be grateful to be along for the ride. But as the power shifts to elite advisors and teams, they will look increasingly to their DCIO partners to help them grow and navigate the new DC landscape.
