Defined contribution (DC) plan sponsors across all plan size segments are expanding their 401(k) plan investment menus¨Cnot by adding new investment options, but by increasing the number of investment managers they use. While this trend signals an upsurge in competition for DC investment managers, it also points to opportunity for DC investment-only (DCIO) firms that don't offer their own record-keeping platforms. These and other findings are included in the annual DC Investment Manager Brandscape™, a Cogent Reports™ study by Market Strategies International.
According to the study, DC plan sponsors offer an average of 19 investment options for participants to choose from, consistent with the number of choices in 2013. However, plan sponsors now report to be working with an average of 3.9 investment managers, up from just 2.8 one year ago. Moreover, 34% of plan sponsors expect to change the mix of investments they offer in the next 12 months while keeping the total number of options on the menu the same, suggesting more scrutiny to come for incumbent managers' offerings.
¡°Driving these trends is the momentum of open architecture moving down market and the heightened desire on the plan sponsor's part for best-of-breed managers,¡± says Linda York, vice president and author of the report. ¡°As record-keepers continue to expand the number of fund managers available on their platforms, new opportunities open up for DCIO providers to present their product offerings to a new set of potential clients.¡±
Beyond the increase in access to prospective customers, the report identifies the key aspects that most drive plan sponsors' likelihood to consider an investment manager. At the top of the list is competitive fees/fee structure, indicating an increased industry focus on all facets of plan costs. Other important consideration factors include brand reputation and a history of demonstrating strong, consistent investment performance.
While the market is dominated by large, full-service providers, the report reveals the overall consideration potential of 46 DC investment managers including those classified as ¡°pure¡± DCIO providers. ¡°The current leaders in brand awareness, favorable impression and consideration are also formidable competitors in the record-keeping market, but we do see a handful of DCIO firms successfully breaking through the clutter and anticipate the competition will heat up as more plan sponsors evaluate options beyond the proprietary offering of their plan provider,¡± said York.
Top 10 DCIO Providers Likely to Be Considered
(Aided Consideration)
1. Franklin Templeton Investments2. PIMCO3. OppenheimerFunds4. BlackRock5. Goldman Sachs6. Janus Capital Management7. Hartford Mutual Funds8. American Century9. Putnam Investments10. InvescoSource: Market Strategies International. Cogent Reports™: DC Investment Manager Brandscape™. May 2014.
