In the DC market, what starts up market usually migrates down. So we asked Lew Minsky, executive director of the Defined Contribution Institutional Investment Association (DCIIA), an association of institutional consultants, record keepers and money managers, what’s in store for the mid and small DC market segments.
While the industry hopes to shift the focus toward plan outcomes and value, the mega (+$1 billion) and large ($250-$1 billion) markets are still focused on fees, funds and fiduciary, Minsky admits. “There’s still a myopic focus on fees as a result of recent litigation, which has driven larger plan sponsors to move to more passive funds, especially TDFs, as well as custom or white labelled investments,” he says. “Fees are still a big driver for fiduciary and investment decisions.”
Minsky and his association are trying to shift the discussion to outcomes. But just as with smaller plans, that will be hard until we get the CFO to understand the true cost of workers not retiring on time.
But Minsky sees progress. “Big consulting firms are developing tools leveraging their HR consulting groups to show metrics that help the finance department understand the value of a good retirement plan,” he notes. “But we need to do a better job communicating value properly.”
Custom TDFs are on the rise in the larger markets — the initial move away from a record keeper’s proprietary investment was driven by the desire for lower-cost index funds. “Larger plans are used to white-labeling funds,” noted Minksy, “so custom TDFs are a natural development. They may not make sense down market but I can see a move by smaller plans to adaptive solutions, the use of hybrid M&A and off-the-shelf funds as well as CITs unique to larger advisor groups.
“It’s not likely that the plaintiff’s bar will go after smaller plans,” notes Minsky, a lawyer himself, “So the natural target will be record keepers and money managers.” (Though he didn’t mention them, broker dealers that have significant DC assets and many DC plans under management may also be targeted.)
Overall, Minsky thinks that we are moving from a market in which each individual has ultimate freedom, to a DC industry that, he says, “looks a lot like DB plans, where professionals are managing risk while improving outcomes.”
