Responding to industry pressure to reduce overall plan costs, including internal management fees, financial advisors are significantly changing their fund lineup to include more passive investment options in the defined contribution (DC) plans they manage. In fact, two-thirds (64%) of advisors with at least $10 million in plan assets now include passive investments on their recommend list, compared with just over half (54%) who did so last year. These and other findings are included inRetirement Plan Advisor Trends™, an annual Cogent Reports™ study by Market Strategies International.
Driven in part by the addition of passive investment options, DC plan advisors, on average, now use 5.7 investment managers in the plans they service—a 46% increase over the average of 3.9 managers they were using last year.
“Unlike the retail marketplace, where we see advisors consolidating their mutual fund assets with fewer providers, open architecture platforms in the DC plan market are facilitating the expansion of investment offerings, enabling advisors to respond to market demands and client requests with more options, especially choices that provide better value for their plan participants,” says Linda York, vice president of the syndicated research division at Market Strategies and lead author of the report. “Increasingly, this is resulting in growing use of idexed funds and heightened competition for actively-managed strategies and target date solutions as advisors pursue the best-in-class providers in each category.”
The full report, first conducted in 2011, evaluates the competitive position of 47 leading DC investment managers on a variety of metrics, including identifying those managers advisors have recently started or stopped recommending to clients. While American Funds ranked first with 22% of advisors planning to add the firm, second place Vanguard (19%) experienced the most significant year over year increase in momentum.
“The surge for Vanguard is a clear result of the increasing prevalence and preference among DC advisors for recommending passive investments within DC plans. At the same time, it’s important to note that American Funds has long been recognized as a low-cost active manager, which is helping to insulate the firm from competitors in today’s cost-conscious environment,” continues York.
DC Investment Manager Momentum: Established DC Advisors
Top 10 Firms
Firm
|
Recently started
|
Recently dropped
|
|
American Funds
|
22%
|
6%
|
|
Vanguard
|
19%^
|
3%
|
|
BlackRock
|
18%
|
2%
|
|
Fidelity Investments
|
15%
|
4%
|
|
Franklin Templeton Investments
|
12%
|
1%
|
|
J.P. Morgan Asset Management
|
10%
|
2%
|
|
OppenheimerFunds
|
10%
|
5%^
|
|
Dodge & Cox
|
10%^
|
2%
|
|
T. Rowe Price
|
9%
|
1%
|
|
PIMCO
|
9%
|
10%^
|
^ Significant increase from 2013
Base: All DC plan advisors aware of brand
Source: Market Strategies International. Cogent Reports™: Retirement Plan Advisor Trends™. September 2014.
