Good news in DCIO. The Defined Contribution Investment-Only (DCIO) market is projected to total $5.3 trillion at year-end 2020, up from $4.9 trillion at year-end 2019.
The expected gain of about 8% is remarkable, Sway Research notes, considering that DCIO sales units were forced to adopt a virtual sales model without warning as the COVID-19 pandemic struck in March 2020.
Sway estimates Defined Contribution Investment Only assets will be roughly 54% of the total DC market at year-end 2020 and will reach 56% by the end of 2023.
Gross DCIO sales in the first half of 2020 averaged 65% of the full-year 2019 total among the 20 asset managers that completed Sway’s survey. The norm is about 55%, but the volatility spurred shifts in participant allocations.
Generating positive net sales in a market that favors low fees remains challenging for many active managers, yet nearly half (45%) of the 20 firms surveyed generated positive net sales in the first half of 2020 – the same as in full-year 2019 – despite the impact of the pandemic on in-person sales models traditionally used by asset managers in DCIO sales.
TDF Domestic Equity Dominating ‘Mega’ DCIOs
Respondents to Sway’s 2020 DCIO Manager Survey generated an average of 38% of gross DCIO sales from domestic equity portfolios over the 12 months ending June 30, 2020, along with 21% from taxable bond products and 18% from target-date solutions.
Ten percent of gross sales were captured via stable value and money market offerings, while international and global equity products took in 8% of sales.
The rest came via balanced funds and specialty categories, such as real estate. There is a significant bifurcation between the biggest players in the DCIO space – which averaged $268 billion of DCIO AUM at mid-year 2020 – and the rest of the marketplace.
Large firms generated 28% of gross DCIO sales from target-date solutions and only 20% from domestic equity, and 23% from taxable bond.
The remaining respondents to Sway’s survey, which managed an average of $25 billion of DCIO AUM at mid-year, captured just 14% of sales from target-date, 44% from domestic equity, and 21% from taxable bond. So, while most DCIOs are harnessing domestic equity products to power DCIO sales, target-date is fueling the outsized growth of these Mega DCIOs.
Virtual Sales Model Yields Surprisingly Strong Results
As COVID-19 struck the country and much of the world in March 2020, DCIOs were suddenly forced to shift to a virtual sales model with no face-to-face interactions with clients and prospects.
Yet, as the sales numbers show, Defined Contribution Investment Only sales and marketing staff proved to be especially adept at the transition, with 85% of asset managers surveyed indicating their DCIO unit had produced stronger-than-expected results in the virtual sales environment of spring and summer 2020.
As a result of their success, three-quarters of DCIO units expect to expand virtual sales going forward, while one in five indicates plans to maintain the levels installed during the crisis.
Sway’s survey suggests virtual sales efforts will be well received by these key business partners, though they will NOT be replacing traditional in-person wholesaling.
When asked if they preferred virtual or in-person DCIO wholesaling, about one-third of plan advisors made clear they desire the in-person approach for engagement and the establishment of relationships, suggesting this model will remain crucial to DCIO sales.
However, roughly half of plan advisors surveyed have no preference for in-person or virtual, while about one in six prefer virtual for its efficiency, and less disruptive and risky (amid the pandemic) nature.