As with all segments of the DC provider market, it’s getting tougher to be a successful DCIO firm. As one executive stated succinctly in Hearts & Wallets’ new “The State of DCIO Distribution: 2015” report, “amateur hour is over.”
Though DCIO assets are expected to increase by 11% to an estimated $3 trillion by the end of 2014 — up from $2.7 trillion in 2013 — a third of firms are in net redemptions. Chris Brown of H&W cautions that DCIO execs need to reset expectations to single-digit growth due to greater competition, the move to passive investments and more money flowing into TDFs.
While the shift from prop funds to third party firms over the last 10 years has been a boon for the DCIO market, there’s more competition for slots already filled, and some are predicting even fewer investments offered on menus. As a result, DCIOs are focusing on fewer platform partners and concentrating resources on the top three.
Though few providers are planning on cutting external wholesalers, the difference between H&W’s Tier 1 and Tier 3 firms is dramatic — gross sales of the top firms stand at $13 billion, compared with $1.4 billion for the lower tier. While there will be a spike for some bond shops due to outflows from PIMCO, look for the gap between the “haves” and the “have nots” to widen.
Plan advisors have come to rely on DCIOs, not just for tools but for guidance and consulting as well. Once relegated to the back seat — along for the ride and expected to pay most of the expenses — top DCIO firms are now firmly entrenched in the front seat, acting as the advisor’s GPS and engine for growth.
So while it’s critical for plan advisors to pick the winners in the DC record keeper war, it’s becoming more important to understand which DCIOs are in their own version of “401(k) Heaven” as they rely more and more on DCIOs to help with many aspects of practice management, prospecting and marketing.
