Last week fifty-plus managers and executives convened in Boston for the Defined Contribution Investment Only (DCIO) Leadership Summit. The attendees discussed topics like robo platforms, the DOL Fiduciary Rule, passive products and everything in between. Each session provided a thorough analysis of its respective topic, and panelists were quite engaging and open to dialogue with attendees. The result of this dynamic was a summit filled with deep knowledge, actionable insights and excellent soundbites. Below are five highlights from the two-day event:
- The DOL rule will arrive, at some point: Almost every single financial services summit or conference over the last year has addressed, directly or indirectly, the industry’s fiduciary elephant in the room; this DCIO event was no exception. In fact, when a poll was taken, not one attendee believed the DOL rule would be totally repealed. When asked for their opinion on a six-month delay, the majority of the room believed such would be the case. Furthermore, most participants were fine with rule’s existence, believing that a major corollary of the regulation, passive investing, was destined to expand within the marketplace regardless. As one panelist said, “This industry is filled with antibodies, and we’re always fighting the status quo. But if you want to get out in front of this, you have to understand that there’s going to be significant changes to the marketplace.”
- Do what’s best for the client, and everything else will take care of itself: During a panel entitled “A Conversation with Advisors in the Post-Fiduciary Era: What are Their Top Priorities?” the question of which products advisors were looking for in a post-fiduciary world received a straightforward response. “If there’s something that you’re afraid to document about a choice you’ve made for your client, it’s probably not in their best interest,” said one panelist. “It’s as simple as that.” Advisors live in a litigious world now, and because there is a lot of pressure on fees, they have an obligation and “a bullseye” pushing them to make the best allocations possible for their clients.
- There are too many share classes: During the prior mentioned session, one panelist recommended that if DC managers wanted to make life easier for wealth managers and clients, there would be no faster and better way to do so than by consolidating share classes. Another panelist said his clients described class packaging as mind-numbing and that the components of each plan, when explained in full, just “muddy the waters.” “Let’s have a zero rev class for retail, a zero rev class for retirement plans, and get rid of the rest of it,” suggested another advisor.
- Many peers are simply leaving DC: Because of increased regulation like the DOL rule and the opportunity cost of servicing DC plans instead of more lucrative wealth management accounts, one panelist from the “Conversation with Advisors” session said a number of his peers were aiming to depart the DC market altogether. A fellow panelist remarked that the rise of people leaving the business was what he found “exciting about the post-fiduciary world.”
- Robo is the new TurboTax: In another session entitled “Industry Viewpoint on the Impact and Fallout from the DOL Fiduciary Rule Changes,” a DC executive offered the analogy that robo platforms are to advisors as TurboTax was to accountants—smart firms won’t allow the technology to replace humans, but rather leverage it to deliver greater value to clients. But while that panelist expected asset managers to harness the technology in some way, he felt it would be naïve to think that a robo could navigate the complexities of DC; however, his answer did not take into account the rise of AI. Another panelist concurred by saying that even if the landscape shifted a bit, the industry would do a decent job of adapting to it. Additionally, she said those firms, particularly smaller ones, that were unable to financially survive alongside robos probably had an acquisition exit strategy, paving the way for further consolidation and scale in the space.
- Fees are just one attribute, not the attribute: Panelists said that while there was obviously a regulatory bias towards passive products in most developed markets, there was still a large enough piece of the active pie to go around. Yes, the market is shrinking, but not so much so that managers still can’t differentiate themselves, in terms of attributes, from low-cost, passive products. “Fees are just one metric or control. Yes, they’re important, but there are other things that you need to look at if you’re going to hold yourself up to a fiduciary standard,” said one participant. “Those are things like protecting investors from catastrophic losses. I feel like as an industry we need to get away from, and I think we are, this active versus passive narrative. It’s very dogmatic. We all know those things need to work together to create very compelling solutions for DC participants.”
Seismic sponsored a few of these summits over the past year, and each one was incredibly informative both in terms of understanding the current pain points of those working within the DC space and evaluating the role of and need for technologies to help managers and firms define and achieve success in this dynamic marketplace. We look forward to learning more in 2017.
