In a classic case of the rich getting richer, Tier 1 DCIOs are getting bigger while smaller, late entrants are lagging as TDFs and QDIAs continue to have a strangehold on DC assets, according to Hearts & Wallet’s annual DCIO report. The DCIO market grew by almost 25% last year, outpacing the overall DC market and accounting for almost 50% of all DC assets — driven in part by dwindling DB plans. But, according to H&W, it only gets tougher from here.
The ratio of new assets to spending is twice as large for Tier 1 providers than for Tier 2s, and is even greater compared with smaller firms. Larger firms are increasing spending, with an average of more than 10 field wholesalers plus platform relationship managers, while smaller firms have fewer than five and struggle to pay the increasing gatekeeper fees demanded by BDs and keep up with the value-add arms race. Of the 28 DCIO firms polled by H&W, one-third are in net redemptions.
What to do? H&W recommends that smaller firms cut back by focusing on fewer advisors and platforms. Indeed, Lord Abbett recently decided to rely almost exclusively on their retail sales force supported by home office DC specialists, and put more direct resources into the mega market. Others firms are doubling down — hiring more people and allocating greater resources. Meanwhile, the sleeping DCIO giants which felt that they did not need a DCIO strategy in the past, including Fidelity, T Rowe and American Funds, have awakened, and are allocating significantly more people and capital to the DCIO market.
So to new entrants like hedge funds and PE firms greedily eying the DCIO market: beware. It’s not as easy as it looks.
For our full list of DCIOs, click here.
