The Defined Contribution Investment-Only market held firm this year even as DCIO sales units were forced to adopt a virtual sales model without warning, according to a new report.
In “The State of DCIO Distribution: 2021—Key Benchmarks, Developing Trends, Winners and Outlook,” Sway Research projects that the DCIO market will hit $5.3 trillion at year-end 2020, up from $4.9 trillion at year-end 2019 for an expected gain of about 8%. The firm estimates that DCIO assets will be roughly 54% of the total DC market at year-end 2020 and will reach 56% by the end of 2023.
Now in its 14th year, the report is based on surveys and interviews of DCIO sales leaders from 20 asset management firms with more than $1.5 trillion of DCIO AUM, and retirement plan-focused intermediaries from 203 advisory practices with more than $150 billion of DC AUM.
Among the 20 asset managers that completed the DCIO manager survey, gross DCIO sales in the first half of 2020 averaged 65% of the full-year 2019 total. The norm is about 55%, but the volatility spurred shifts in participant allocations, the report notes.
What’s more, nearly half (45%) of the 20 firms surveyed generated positive net sales in the first half of 2020—the same as in all of 2019—despite the pandemic’s impact on in-person sales models.
TD Solutions Drive Sales at Mega DCIOs
There is a significant divergence between the mega players in the DCIO space and the rest of the marketplace, the report notes. While most DCIOs are harnessing domestic equity product to power DCIO sales, target-date solutions are fueling the outsized growth of the Tier 1A mega DCIOs.
Respondents generated an average of 38% of gross DCIO sales from domestic equity portfolios over the 12 months ending June 30, 2020, along with 21% from taxable bond products and 18% from target-date solutions. Sway notes that 10% of gross sales were captured via stable value and money market offerings, while international and global equity products took in 8% of sales. The rest came via balanced funds and specialty categories, such as real estate.
Sway’s Tier 1A segment, which averaged $268 billion of DCIO AUM at mid-year 2020, generated 28% of gross DCIO sales from target-date solutions and only 20% from domestic equity and 23% from taxable bond. The remaining respondents managed an average of $25 billion of DCIO AUM at mid-year, and captured just 14% of sales from target-date solutions, 44% from domestic equity and 21% from taxable bond.
Virtual Sales
Meanwhile, despite being forced to shift to a virtual sales model with no face-to-face interactions with clients and prospects, DCIO sales and marketing staff proved to be especially adept at the transition.
According to Sway’s findings, 85% of asset managers surveyed indicate that their DCIO unit had produced stronger-than-expected results in the virtual sales environment of spring and summer 2020. Consequently, three-quarters of DCIO units expect to expand virtual sales going forward, while one in five indicate plans to maintain the levels installed during the crisis.
Sway’s survey of more than 200 DC plan advisors suggests virtual sales efforts will be well-received by these key business partners, although they will not be replacing traditional in-person wholesaling.
When asked if they preferred virtual or in-person DCIO wholesaling, about one third of plan advisors made clear they desire the in-person approach for engagement and the establishment of relationships, suggesting this model will remain crucial to DCIO sales, the firm notes. Nearly half of plan advisors surveyed reported no preference for in-person or virtual, while about one in six prefer virtual for its efficiency and because it’s less disruptive and risky amid the pandemic.
According to Chris Brown, Sway Research’s founder and principal, “this suggests that DCIOs have a tremendous opportunity to stretch resources and expand coverage via the integration of virtual sales with traditional in-person wholesaling efforts.”
“With fees for both asset management and DC plan services under seemingly relentless downward pressure, one of the few true bright spots to come out of the pandemic may just be the adoption of, and education in, virtual sales by DCIO sales and marketing units,” the report emphasizes.
