401(k) fee pressure may cause more active managers to look to strategic beta strategies in order to keep pace with their passive investment counterparts.
“Corporate DC asset owners are adopting use of strategic beta, with asset managers reporting that, on average, 11 percent of products are in corporate DC plans,” Cerulli Associates reports.
The Boston-based research firm adds that the majority of product development has occurred within the ETF wrapper, a vehicle “not as conducive to the DC space, especially within 401(k) plans.”
Asset managers that have strategic beta or are in the midst of developing strategic beta should not overlook the 401(k) market “as an area of opportunity to grow assets.”
Fee pressure is the dominant theme within the current 401(k) industry, according to Cerulli. The heightened focus on fees has been a boon for passive managers, while simultaneously creating a “significant headwind” for their active counterparts.
In a 2016 Cerulli survey of defined contribution investment-only (DCIO) asset managers, demand for passive funds (61 percent), increased competition for assets (46 percent), and pressure on investment management fees (46 percent) were identified as the greatest challenges to DCIO sales.
The firm also reported outflows from mutual funds totaled $13 billion during the third quarter, and September marked the fourth straight month of redemptions.
Despite that, three-month growth from July through September still reached 3.3 percent. ETF assets grew 7.3 percent during the third quarter, ending at slightly less than $2.4 trillion. September flows were a healthy $18 billion, bringing the quarterly total to nearly $92 billion.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.