In their ninth annual study of the DCIO market, the research firm Hearts and Wallets found that while the market grew overall, more than one-third experienced net DC outflows. The DCIO market grew from $2.7 trillion to $2.9 trillion in one year, and is projected to increase to $3.6 trillion in 2018.
But DCIOs face a tougher market as about 43 firms with dedicated wholesalers vie for more limited slots on investment menus and a significant percentage of assets goes into proprietary TDFs. The second- and third-tier providers are trying to catch up, outspending their larger rivals relative to AUM. Others are ratcheting back — looking to spend less on sponsoring industry events and leveraging retail distribution more.
Greater emphasis is being paid to mid-tier consultants and asset allocators, with some doing well in the sub-advised market. Meanwhile, in a search for alpha, hedge funds and PE firms are expected to enter the DC market.
With limited DC distribution networks, DCIOs have begun to focus on specialists while relying on record keeper wholesalers to help with “blind squirrels” and so-called “internationalists.” But due diligence by more sophisticated advisory groups and mid-tier consultants is more intense, based on real value added, versus relationships with almost all of these advisors acting as fiduciaries — especially mid-to-large-market clients, who are more sensitive about subsidies paid to the advisor and their firm.
