Re-Evaluating the Use of CITs in DC Plans.

Transcription

1 U.S. DEFINED CONTRIBUTION DISTRIBUTION 2017 Re-Evaluating the Use of CITs in DC Plans Overview & Methodology In its fourth iteration, this report examines the defined contribution (DC) market, with a focus on the mid-sized plan asset segment, and the thirdparty distribution channel. It also addresses the investment-only component of the DC market and specifically considers defined contribution investmentonly (DCIO) asset managers expectations for collective investment trust (CIT) asset growth, the evolution of mutual fund share class offerings, and potential challenges to DCIO sales. Furthermore, this report explores the topics of retirement readiness, the prevalence and current implementation of retirement income solutions, and the theme of financial wellness from the recordkeeper perspective. In addition, the report includes in-depth research on the target-date fund (TDF) landscape, sizing the target-date market and evaluating areas for target-date innovation and product development. Lastly, this report also assesses the current use of CITs in the DC plan market and how CITs may gather greater DC plan marketshare. Data is primarily sourced from four proprietary surveys, including DC Recordkeeper (in partnership with The SPARK Institute), DCIO Asset Manager, Target-Date Provider, and Retirement Specialist Advisor Surveys. Participation included 7 out of the top-10 largest DC recordkeepers by DC recordkept assets and DCIO asset manager responses from firms representing greater than $3 trillion in combined DCIO assets. The Target- Date Provider Survey reflects responses from 13 of the top-15 target-date providers by assets. Benefits: y Evaluates the potential for increased CIT adoption in the DC plan market, including a detailed comparison of CITs and mutual funds, CIT positioning strategy, and new market sizing of CITs in 401(k) plans. y Explores distribution strategies and product innovation in the fastgrowing target-date market. y Examines the top challenges facing DCIO asset managers and identifies the most influential decision makers by 401(k) plan asset segment. Questions Answered: y What are some of the concerns identified as preventing further DC plan adoption of CITs and how can they be addressed? y How and where can asset managers fit CITs into their existing distribution strategies? y Which distribution channel do target-date asset managers view as the greatest opportunity? SUBSCRIPTION DETAILS $19,000 PURCHASE INCLUDES y Digital copy and hardcopy in color y Online access to 3 related reports y Unlimited online firm-wide access y Exhibits in Excel y Key findings y Analyst support y Interactive Report Dashboards NEW y Executive Summary Video NEW RESEARCH INCLUDED WITH SUBSCRIPTION y Two years of The Cerulli Report U.S. Defined Contribution Distribution y The Cerulli Report State of DCIO 2014: The Emerging Role of the Specialist Advisor For more information, contact us: ``info@cerulli.com ANNUAL 164 PAGES 126 EXHIBITS y Which 401(k) plan asset segment do DCIO asset managers identify as presenting the best opportunity in terms of revenue growth? y What services do retirement specialist advisors identify as the most valuable to winning DC plan business? Cerulli Interactive Report Dashboards Experience Cerulli s digital analytics platform and explore interactive data from this report We are pleased to include these interactive report dashboards with your subscription: NEW 1. Asset Manager Perspective on Investment Vehicle: Compare which investment vehicles provide the best opportunity by plan asset segment. 2. Target-Date Managers Product Architecture: Examine managers reasons and considerations for offering open- and closed-architecture target-date products, and allocation ranges for nonaffiliated asset managers. 3. DC Recordkeeper Perspective on Retirement Income and Financial Wellness: Review income solutions, distribution options, retirement income projections, and financial wellness program costs, access, and measurement of effectiveness. 4. Advisor and Asset Manager Perspective on Value-Adds Offered to Advisors: Explore which value-adds offered are considered most beneficial by asset managers and retirement and emerging retirement specialist advisors. CERULLI ASSOCIATES info@cerulli.com

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3 CIT Tipping Point: Are We There Yet? Chapter 1 Exhibit 1.07 Asset Managers: Level of Priority Placed on Select Product-Related Initiatives, 2017 Building out new investment vehicles, such as CITs, is identified as a high priority by greater than half (54%) of product management executives at asset managers. Source: Cerulli Associates Analyst Note: Totals may not sum to 100% due to rounding. 100% 90% 4% 22% 9% 17% 9% 17% 80% 70% 60% 50% 42% 30% 50% 46% 57% 57% 70% 40% 30% 20% 10% 54% 48% 41% 38% 35% 26% 30% 0% Build out new vehicle (e.g., CIT, ETF) offerings Develop/deliver model portfolio/ asset allocation strategies Fee modification (e.g., reduction, consistency across product line) Build out asset class capabilities Incorporate ESG/SRI into the investment process Product rationalization (e.g., liquidating, merging funds) Product organization change High priority Moderate priority Not a priority The Cerulli Report U.S. Defined Contribution Distribution

4 Table of Contents: Expanded Key Questions Answered What are the top priorities for DC plan sponsors? What are the top challenges to DCIO sales? Which 401(k) plan asset segments do DCIO asset managers identify as presenting the best opportunity in terms of revenue growth? What are managers intentions regarding creation of additional target-date fund series? What is the equity allocation range at target-date fund landing points? What services do retirement specialist advisors identify as the most valuable to winning DC plan business?...21 Chapter 1: CIT Tipping Point: Are We There Yet? Exhibit Cerulli Proprietary Surveys, (k) Plan Segment Is Primary DC Opportunity for CITs Exhibit Collective Trusts: Clarifying Terminology, Exhibit CIT Assets by Plan Type, (k) Plan Market by Investment Vehicle...26 Exhibit (k) Assets by Investment Vehicle, Exhibit (k) Plan Sponsors: Expected Changes to 401(k) Plan Investment Vehicles by Plan Asset Segment, Exhibit Asset Manager Perspective: Investment Vehicle Providing Best Opportunity by Plan Asset Segment, Asset Manager Considerations a CIT Distribution Strategy Targeting 401(k) Plans...30 Exhibit Asset Managers: Level of Priority Placed on Select Product-Related Initiatives, Exhibit CIT Availability and Asset Manager Expectations for DC Flows to CITs Over the Next 12 Months, Exhibit Why Asset Managers Expect DC Flows to CITs Will Increase Over Next 12 Months, Exhibit Availability of Custom Fee Arrangements, Exhibit Mutual Fund R6 Share Class vs CITs, Exhibit CIT Knowledge Level by DC Industry Stakeholder, Exhibit Barriers to CIT Adoption in DC Plans, Barriers to Adoption...38 Delving into the 401(k) Plan Opportunity for CIT Distribution by Investment Strategy...39 Exhibit (k) Plan Assets Held in CITs, The Cerulli Report U.S. Defined Contribution Distribution

5 Exhibit (k) Plan CIT Assets by Stable Value, Target-Date, and Core Menu Options, Exhibit CIT Managers: Target-Date Asset Minimum, Devising a Comprehensive CIT Strategy Chapter 2: DC Market Sizing Exhibit Total DC Assets and Growth, E Exhibit Total Corporate DC Assets and Growth, E...47 Exhibit Total 401(k) Assets and Growth, E...48 Exhibit Not-for-Profit/Governmental DC Assets by Segment, E...49 Exhibit (k) Asset Allocation by Plan Asset Segment, Exhibit Micro Plan Asset Segment Profile, Exhibit Small Plan Asset Segment Profile, Exhibit Mid-Sized Plan Asset Segment Profile, Exhibit Large Plan Asset Segment Profile, Exhibit Mega Plan Asset Segment Profile, Exhibit (k) Assets by Investment Vehicles, Exhibit (k) Investment-Only Assets vs. Proprietary Assets, Chapter 3: DCIO Asset Managers: Product and Sales Strategies DC Asset Managers Opportunities and Challenges Exhibit Top-25 Defined Contribution Asset Managers, Exhibit Asset Manager Perspective: Greatest Growth Opportunity by Plan Asset Segment, Exhibit Asset Manager Perspective: Degree of Growth Opportunity by DC Plan Type, Exhibit Asset Manager Perspective: Opportunity for Gaining DC Assets by Category Over the Next 12 Months, Exhibit Asset Manager Perspective: Investment Strategies Presenting the Greatest Potential to Gather DC Core Menu Assets, Exhibit Asset Manager Perspective: Challenges to DCIO Sales, DCIO Team Structure Exhibit Asset Managers with Dedicated DCIO Group, Exhibit DCIO Sales Team Average Number of People by Position, 2016 vs. 2017E...67 Exhibit Asset Managers Methods of and Incentives for Collaboration Between DCIO and Retail Salesforce, Exhibit DCIO Average Compensation by Component and Position and Number of Advisor Practices per External Wholesaler, The Cerulli Report U.S. Defined Contribution Distribution 2017

6 DCIO Distribution Relationships Exhibit Asset Manager Perspective: Number of DC Recordkeeper Platforms with Firm Product Placement, Exhibit Asset Manager Perspective: Key Decision Maker by 401(k) Plan Asset Segment, Exhibit Select Boutique DC Consultants by Regulatory AUM, Exhibit Select DC Consultant Merger and Acquisition Activity, Exhibit Asset Managers Primary Method of Covering Outsourced Fiduciary ERISA 3(21) and 3(38) Service Providers, Exhibit Asset Manager Perspective: Most Beneficial Value-Adds for Retirement Specialist Advisor and Emerging Retirement Specialist Advisor, DCIO Investment Vehicles Exhibit Asset Managers DCIO Assets by Investment Structure, Exhibit Asset Manager Perspective: Appropriateness of Alternatives in DC Plans, Exhibit Asset Manager Perspective: Opinions of ETF Use in DC Plans, Exhibit Asset Manager Expectations for Revenue-Sharing Arrangements with Recordkeepers, Exhibit Asset Managers Anticipated Changes to Mutual Fund Share Classes, Exhibit Asset Manager Perspective: Availability and Use of Non-Revenue-Sharing Share Class in DC Plans, Chapter 4: Target-Date Funds: Distribution Strategies and Product Innovation Market Sizing, Industry Leaderboards, and Distribution Opportunities Exhibit Projected 401(k) Target-Date Assets and Contributions, E...84 Exhibit Target-Date Managers: Expectations for Target-Date Asset Growth Over the Next 12 Months, Exhibit Target-Date Managers: Percentage of Off-the-Shelf Target-Date Assets by Channel, Exhibit Target-Date Managers: Attitudes Regarding Target-Date Growth in IRAs Over the Next 12 Months, Exhibit Target-Date Managers: Level of Opportunity for Growth of Off-the-Shelf Target-Date Assets by Distribution Type, Exhibit Total Mutual Fund and Collective Investment Trust Target-Date Assets, Exhibit Top-15 Target-Date Managers by Assets, Exhibit Target-Date Manager Leaderboards by Mutual Fund and CIT Assets, Exhibit Number of Target-Date Mutual Fund Series that Opened and Closed, Q Product Structure and Asset Allocation Exhibit Target-Date Asset Managers: Number of Off-the-Shelf Target-Date Series Offered, Exhibit Target-Date Managers: Intentions to Create Another Series of Target-Date Funds, Exhibit Target-Date Managers: Vintage Offerings, Exhibit Target-Date Product Architecture: Open, Closed, or Both and Allocation Range to Nonaffiliated Asset Managers, 2016 vs The Cerulli Report U.S. Defined Contribution Distribution

7 Exhibit Target-Date Managers: Reasons for Offering Open-Architecture Target-Date Product, Exhibit Closed-Architecture Target-Date Fund Managers: Reasons for Keeping Existing Target-Date Product Closed to Nonaffiliated Managers, Exhibit Investment Strategies in Target-Date Products, Exhibit Part 1. Inflation Hedges Used in Target-Date Products, Exhibit Part 2. Alternatives Used in Target-Date Products, Exhibit Target-Date Managers: Use of ETFs as Underlying Vehicle and Reason for Using ETFs, Glidepath, Benchmark Considerations, and Retirement Income Exhibit Equity Allocation Range at Target-Date Fund Landing Point, 2016 vs Exhibit Target-Date Managers: Use of Tactical Management in Target-Date Products and Permissible Range, Exhibit Benchmark Used for Target-Date Product, 2016 vs Exhibit Target-Date Fund Evaluation Tool Offered, Exhibit Inclusion of a Retirement Income Fund within Firm s Target-Date Series, 2016 vs Exhibit Target-Date Managers: Perspective on Embedding a Guaranteed Income Product into Target-Date Fund, Custom Solutions and Product Development Exhibit Custom Glidepath Services Databank, Exhibit Target-Date Managers: Reasons DC Plan Sponsors Implement a Custom Glidepath, Exhibit Target-Date Managers: Potential Advances in Target-Date Product Development, Exhibit Target-Date Managers: Perspective on Hybrid Target-Date Products, Exhibit Target-Date Managers: Potential Threat from Managed Accounts, 2016 vs Chapter 5: DC Plan Recordkeepers: Identifying Opportunities and Navigating Challenges Recordkeeper Business Statistics Exhibit Top-10 DC Recordkeepers by Total DC Recordkept Assets, Exhibit DC Recordkeeper Perspective: Participation and Opportunity by DC Market Segment, 2016 vs Exhibit DC Recordkeeper Plan Administration Services Offered (excluding Recordkeeping), Exhibit DC Recordkeepers Average Mix of DC Plan Recordkeeping Fee Arrangements, Staffing and Sales Exhibit DC Recordkeeper Perspective: Staffing for DC Business by Position in the Next 12 Months, Exhibit DC Recordkeeper Perspective: Sales Efforts, 2016 vs Exhibit DC Recordkeeper Perspective: Top Differentiators to Win Plans by Plan Asset Segment, Exhibit DC Recordkeeper Perspective: Key Decision Maker by Plan Asset Segment, DC Plan Characteristics Exhibit DC Recordkeeper Perspective: Top Priorities for DC Plan Sponsors, The Cerulli Report U.S. Defined Contribution Distribution 2017

8 Exhibit DC Recordkept Plans with Automatic Features, 2016 vs Exhibit DC Recordkept Plans Offering Roth Option and Participants Making Roth Contributions Exhibit DC Recordkeeper Perspective: Strategies Most Effective for Encouraging Employee Participation and Savings, Investment Products and Services Exhibit DC Recordkeeper Perspective: Expected Changes to Number of Investment Products on Recommended List, Exhibit Average Percentage of DC Recordkept Assets in Proprietary Funds, 2016 vs Exhibit Estimated Recordkept Target-Date Fund Assets by Target-Date Type, 2016 vs Exhibit DC Recordkeeper Use of Managed Account Providers, Exhibit DC Recordkeeper Perspective: Attitude Toward Constructing and Unitizing White-Label Funds, 2016 vs Retirement Income Exhibit Services Offered That Accumulate and Distribute Income, Exhibit DC Recordkeeper Perspective: Barriers to DC Plan Adoption of Retirement Income Solutions, Exhibit Distribution Options Offered to Retired/Separated Participants, Exhibit Displaying DC Plan Participants Projected Retirement Income, Exhibit DC Recordkeepers Use of Retirement Income Replacement Ratio (RIRR), Financial Wellness Exhibit DC Recordkeeper Perspective: Components of Financial Wellness Programs, Exhibit Financial Wellness Programs: Associated Costs, Access, and Measurement of Effectiveness, Chapter 6: Advisor-Sold DC Market: Roles of the Retirement Specialist and Emerging Retirement Specialist Advisor-Sold DC Method of Distribution and Marketshare Exhibit Corporate DC Assets by Method of Distribution Databank, Exhibit Advisor-Sold DC Market by DC Plan Type, Exhibit DC-Focused Advisor Headcount and Marketshare by Channel, Exhibit Advisor-Sold DC Plan Assets by Channel and DC Focus, Emerging Specialist Advisor Profile and Focus on DC Plan Business Exhibit Retirement Specialist Advisor and Emerging Retirement Specialist Advisor: Business and Product Mix, 2Q Exhibit Retirement Specialist Advisor and Emerging Retirement Specialist Advisor: Staffing Profile, 2Q Exhibit Emerging Retirement Specialist Advisors Degree of Focus on Growing DC Plan Business Over Next 12 Months by Channel, 2Q Exhibit Emerging Retirement Specialist Advisors: Why DC Plans Are a Major Focus, 2Q Exhibit Emerging Retirement Specialist Advisors: Factors Preventing DC Plan Business Expansion, 2Q The Cerulli Report U.S. Defined Contribution Distribution

9 Retirement Specialist Advisor Business Profile and DOL Conflict of Interest Rule Exhibit Retirement Specialist Advisors: Retirement Book of Business and Compensation Profile, 2Q Exhibit Retirement Specialist Advisors Attitudes Regarding DOL Conflict of Interest Rule, 2Q Retirement Specialist Advisor Recordkeeper Searches and Qualities Exhibit Retirement Specialist Advisors: Recordkeeper Searches and Outcomes, 2Q Exhibit Retirement Specialist Advisors: Important Factors in Selecting a Recordkeeper, 2Q Retirement Specialist Advisor DC Plan Business Exhibit Retirement Specialist Advisors: Services Valuable in Winning DC Plan Business, 2Q Exhibit Retirement Specialist Advisors: DC Plan Participant Engagement, 2Q Exhibit Retirement Specialist Advisors: DC Plan Investment Due Diligence Process, 2Q 2016 vs. 2Q Exhibit Retirement Specialist Advisors: Anticipated Changes to DC Plan Investment Menu Over Next 12 Months, 2Q Q Exhibit Retirement Specialist Advisors: Distribution of DC Plan Assets by Share Classes and Investment Vehicles, 2Q Exhibit Retirement Specialist Advisors: Importance of Factors When Recommending Target-Date Funds, 2Q 2016 vs. 2Q Exhibit Retirement Specialist Advisors: ERISA Fiduciary Status Across DC Assets Under Advisement, 2Q 2016 vs. 2Q Exhibit Retirement Specialist Advisor and Emerging Retirement Specialist Advisor: Most Beneficial Value-Add From Asset Manager, 2Q Exhibit Retirement Specialist Advisors Views on Third-Party Administrators, 2Q Index of Companies The Cerulli Report U.S. Defined Contribution Distribution 2017

10 Index of Companies Index of Companies 1290 Asset Managers... 83, 92 American Funds Ameriprise BlackRock... 58, 60, 83, 90, 92, 111 Blue Prairie Callan... 54, 88 CAPTRUST... 35, 88, 121 Charles Schwab...19, 57, 78, 94, 102 DST Empower Retirement... 83, 112 Fidelity Investments...15, 82, 83, 90, 92, 93, 116, 131 Fiduciary Investment Advisors Financial Engines Goldman Sachs Ibbotson J.P. Morgan...57, 90, 93, 159 Lockton... 35, 121 Madison Asset Management Manning & Napier...35 MassMutual Mercer... 35, 54, 88 Mesirow... 21, 128, 141, 150, 155 MFS Investments Morningstar...21, 34, 93, 131, 141, 150, 155 Multnomah Group... 35, 53 Natixis... 83, 92 NFP... 35, 121 Russell SageView... 35, 88, 121 Sheridan Road... 35, 88, 121 State Street (SSgA) T. Rowe Price...15, 82, 90, 93 TI , Vanguard...15, 58, 60, 82, 90, 102, 113, 116 Vestwell Wells Fargo... 19, The Cerulli Report U.S. Defined Contribution Distribution 2017