While key challenges remain, conditions are improving for DCIO sales and marketing units within asset management organizations as the long-running bull market for stocks and improving net sales are boosting DCIO asset bases, according to a new study.
Sway Research’s “The State of DCIO Distribution: 2018 Key Benchmarks, Developing Trends, Winners and Outlook” explains that even though target-date funds and passive management are still growing in market share, asset managers are adapting and finding ways to generate sales from within, as well as outside, these types of vehicles.
Now in its 11th year, this year's report is based on interviews with DCIO executives and plan intermediaries, as well as surveys of DCIO sales leaders from 25 leading asset management firms with more than $1.1 trillion of DCIO AUM and executives from 190 advisory practices with more than $100 billion of DC AUM. The surveys and interviews were conducted over the course of last summer.
At the mid-point of this year, the average manager experienced 12-month asset growth of 12%, much of which came during the first half, when the average growth rate was 9%, the study says. Sway projects DCIO assets will rise 13% in 2017, reaching $3.8 trillion, for a 49% share of DC market assets by year-end. In addition, the firm anticipates that continued growth will drive DCIO assets to $5.5 trillion, and 54% market share by the end of 2022.
Meanwhile, average net sales of $393 million were generated in the first-half of 2017, and $1.32 billion in 2016, according to survey responses. Sway notes that this is a big improvement compared to a year ago. In the first half of 2016, the average manager had $21 million in net redemptions from its DCIO unit. Moreover, over 50% of managers surveyed had experienced net outflows at that time, but this dropped to 40% in the first half of 2017.
“The DCIO market has undergone substantial changes in recent years, and managers have had to adapt both in terms of product (e.g., institutional pricing, more satellite less core for active managers, etc.) and sales and marketing (increased coverage of analyst teams, greater expertise around advisor practice management, etc.),” explains Chris Brown, founder and principal of Sway. “Most have met the challenge and are beginning to reap the rewards in terms of positive net flows.”
Model-builders and Aggregators
An increased focus on non-traditional channels, including model-driven solutions and aggregators, are helping with some of the rebound in DCIO sales, according to the report.
Nearly two-thirds of managers surveyed believe model-driven solutions will soon drive the majority of DCIO sales. Sway notes that third-party fiduciaries, such as Morningstar, Mesirow, Leafhouse Financial and others, are behind the scenes selecting and monitoring managers in 3(38) models and other asset allocation solutions.
Data aggregation services are also making a significant impact on DCIO sales tracking and business development. DCIOs are spending on average about a third of their time and resources with aggregators, as they are typically staffed with elite plan advisors and advisory teams, the report notes. Moreover, about one in four DCIOs say aggregators presently offer a higher ROI than traditional recordkeeping and brokerage platforms.
Better point-of-sale data is also helping boost sales at some firms, which appears to be linked to a rise in the use of data aggregation services. And even though the average manager can track only 54% of DCIO sales to their source, this is an improvement from the 49% average in 2016.
Sway notes that users of such services report much higher levels of sales tracked to the source (62% vs. 45% for non-users). Moreover, these tools are helping in the areas of new business development, competitive intelligence and internal communications between DCIO and other sales units.
