Plan Sponsors Look to Make Shifts in Investment Lineups

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Plan sponsors’ desire to reduce plan costs is substantially impacting their approach to investment menu design and their relationships with DC investment managers. But the impact of the resulting activity varies by plan as well as by asset manager. Overall, 7% of plan sponsors intend to add at least one manager to their investment lineup in the next year. At the same time, 2% plan to drop a manager and 16% intend to do a combination of adding and dropping managers, suggesting that the future is not necessarily secure for all firms.

Plan Sponsors Adding and Dropping Investment Managers

When asked specifically about the managers they will continue to use, 29% of plan sponsors intend to award new business to existing firms while only 15% plan to pull business away—evidence that plan sponsors are concentrating their assets with the smaller number of managers they know.

Anticipated Changes to Current Investment Managers

Yet in instances where plan sponsors say they intend to drop or reduce the number of investment options provided by specific investment managers, the desire to reduce fees/expenses outranks underperformance as the most common reason for the second year in a row. Interestingly, Large-Mega plan sponsors are more likely than their peers with smaller plans to drop a manager due to asset class risk attributes no longer meeting requirements (26%) or to switch from an active manager to a passive manager (22%). In addition, this year we also observe a significant increase in the percentage of plan sponsors who would drop an investment manager because of negative media perception, driven by respondents in the Micro plan segment.

The majority of plan sponsors overseeing the investment menus in their 401(k) plans neither actively engage with nor actively seek information about investment managers on a regular basis. In fact, for many plan sponsors, investments is just one of many responsibilities they assume within their organization. To capture the attention of prospective plan sponsors as well as increase engagement with current clients, investment managers would be wise to focus their efforts on strengthening perceptions among consultants and financial advisors and tailor their direct marketing outreach to an audience that is less knowledgeable and more participant-focused than larger, more sophisticated institutional investors.


For more findings from the Retirement Planscape report, watch a replay of our webinar, Upping Engagement with 401(k) Plans.

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This entry was posted in Brand and Messaging, Financial Services and tagged by Linda York. Bookmark the permalink.
Linda York

About Linda York

Linda York is a senior vice president in the Syndicated Research division where she leads the Wealth Management Syndicated Research & Consulting practice. She has over 20 years of experience in financial services spanning responsibilities in finance, marketing and business strategy. Before joining Market Strategies, Linda was the practice director of Syndicated Research at Cogent Research, where she managed the product development and execution process for syndicated research projects and consulted with dozens of clients in the retail and institutional wealth management space. She earned an MBA in marketing from the University of Connecticut and a bachelor’s degree in mathematics from Mount Holyoke College. Linda is an avid equestrian and a two-time finisher of the Boston Marathon.

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