Defined Contribution Investment Only providers, better known as DCIOs, are an essential part of the DC business, and their wholesalers have become an integral part of many advisory practices.
Many were spawned from record keepers that exited the DC record keeping business after expanding their menus beyond proprietary funds over the past 10 years. Though investments are the lifeblood of DC plans, record keepers select which ones are offered on their platforms, and advisors select or help clients select the investments from that menu. DCIOs can influence these decisions, but ultimately they rely on their partners to make the final decision, which is why many DCIOs have built impressive value added services for advisors, some of which are made available exclusively through record keeper partners.
Lacking the ultimate decision-making authority on platform placements, DCIOs have also been aggressive with distributors since 2010, especially larger broker-dealers focused on supporting DC advisors.
The vast majority of resources now available to plan advisors, even those created by third parties, have been made available courtesy of DCIOs. In addition, the DCIO wholesalers are among the most knowledgeable resources in the business, a professional prerequisite for their focus on covering “Elite” plan advisors. Indeed, DCIO wholesalers have become de facto practice management experts, helping advisors not only manage their practice, but also sharing competitive information about what other Elite advisors are doing.
Along with those resources, DCIOs support record keeping and administrative services through revenue sharing; they also support educational and marketing activities of advisors and distributors.
Though a few national record keepers have a DCIO division, these days most have created a “Chinese wall” that allows their DCIO group to work more effectively with other record keepers. With the industry moving toward professionally managed investments and lower cost funds, the DCIOs which have target-date funds with at least $1 billion DC AUM or significant passive strategies have done well — even better if they also control a record keeper. Actively managed funds are still used by an overwhelming majority of plan advisors, but their market share continues to slip with the hope that custom TDFs and white-labelled strategies will gain traction.
As with record keepers and distributors, consolidation has hit DCIOs, with some not providing external wholesaler support or value add. Some experts expect hedge funds and alternative investment managers to try to enter the retail DC market, but it’s going to be difficult for these almost strictly institutionally distributed money managers to enter the DCIO space — more likely they will partner with other firms looking to make their strategies available.
Our list of DCIO providers, last updated in December 2015, follows. (To view the list in pdf format, click here.)
