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The Dominance of DC And What it Means for Advisors

With the demise of DB plans and Gen Xers and Millennials not expecting Social Security to be around when they retire, younger Americans are increasingly viewing their DC accounts as their primary — and perhaps only — source of retirement income.

In fact, for many of these investors, who have limited salaries or are looking to buy houses and start a family, their DC account might be their only source of personal savings — contributing further to making DC plans the center of the asset management and investing universe.

With more than $14 trillion in DC and IRA assets — up more than 50% since 2007 — and $5.2 trillion in state and local government plans, it’s no wonder the world’s largest asset managers are keenly focused on the DC and IRA market. And if states require smaller companies to make workplace retirement plans available and push more state workers into DC-like plans, assets will grow even more.

The bottom line: DC plans are no longer a niche market that asset managers see as ancillary to their wealth management business. It’s becoming their core market.

And with good reason. Other than high net worth investors, most savers will look to put money into their DC plans and IRAs before other savings vehicles because of the tax advantages, employer match and the ease of saving through payroll deducted savings plans, with an increasing number enrolled automatically. With the pending DOL fiduciary regs, less money will be rolled out of plans. And there is a movement by the industry, supported by plan sponsors, to help workers consolidate their DC and IRA accounts.

So what does it all mean for today’s plan advisors? Most of the old guard of about 2,500 “Elite” DC advisors have built their DC businesses on the back of wealth management. But the new guard of 25,000 younger “Core” plan advisors with $25 million or more of DC assets see DC plans as a way to build their wealth management business. This younger group “gets” the new world — while the old guard still largely sees themselves as serving a niche market at best.

So while under the DOL proposed regs it will be a pain to charge more for an IRA than what an advisor charges the DC plan, it’s less painful to be a plan fiduciary on a pool of money than to be a fiduciary on small, disparate IRA accounts or even non-retirement assets.

We can argue and complain about the world changing as the media and regulators wake up to today’s DC-centric world — or we can look for opportunities that others might not see, lost in a world that has passed them by.

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