The defined contribution market is not immune to the disruption facing the asset and wealth management industry. In fact, the defined contribution market has been shaken up even more quickly as fee compression, consolidation, heavy regulatory oversight and technology have accelerated rapid change. Not unlike the broader industry, we know the future of the defined contribution market will be defined by increased personalization and the integration of advanced technology and automation.
As the impact of these forces takes hold of the major industry players–record keepers, plan advisors, plan consultants and asset managers–are being held to higher standards of care with increasing expectations on transparency, personalization and better investment outcomes (delivered at reasonable fees).
Defined contribution distribution teams–more specifically, defined contribution investment only (DCIO)–are facing a challenging environment moving forward. In the face of these challenges we can expect DCIO sales organizations to prepare for a future state in the following ways:
- Focus! Focus! Focus!
DCIO sales organizations with limited and sometimes shrinking resources will have a much narrower distribution focus. Segmentation will be essential and the collection of the right data is a high priority for firms. However, as data sources and accuracy is different from the retail wealth side of the organization, segmentation will be more ‘institutional’ in nature, driven more by demographics and practice characteristics than transactional behaviors and history. The formulation and validation of a sound segmentation strategy is central to the success with plan advisors and consultants.
- Be known for something
With a majority of flows going to managers with strong brands in passive and large Target Datelines, active managers have their work cut out for them. In this environment, asset managers must carve out their brand niche and become the ‘default’ in that space. For example, product development and/or positioning can be focused on the delivery of personalized target date investment solutions. Or in the single strategy space, develop products by positioning existing products as the best in risk management, ESG, etc. For asset managers committed to the DCIO space, brand association, and the product to match it is critical.
- Spend money the right way
Revenue sharing is heating up and it’s not just in the retail wealth market. We fully expect record keeper partnership programs with a hefty price tag to become the norm. This means the DCIO sales team already strapped for cash will need to be even more diligent with their budget. Buying space at an industry or distribution partner event is usually a good way to generate awareness and leads, but more and more sales executives are questioning if the juice is worth the squeeze. Asset manager hosted due diligence events for a small and focused group of plan advisors has yielded great success and at a modest price tag. Attendees at our latest DCIO Roundtable event confirmed these events are effective. Those who have not done this expressed excitement about the idea. I would expect these events to be increasingly common through 2019 and beyond.
For more detail on our research and recommendations on tackling the current distribution challenges download our whitepaper, Shaking Up, Shaking Out: Bold Moves that are Transforming Asset and Wealth Management
Written by Matt Fronczke
Senior Director, Strategic Business Consulting