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The Dominant Players in 401(k) Land

If they’re good enough for institutional clients, they might be favorites among defined contribution plan advisers, who recently ranked their top providers for II.

Firms with serious scale — not boutique specialists — are leading the defined contribution market, according to Institutional Investor’s survey of nearly 500 plan advisers. 

The second annual DC Industry Leaders study identified the industry’s top record keepers, DC investment–only (DCIO) firms, and broker-dealers based on ratings from plan advisers overseeing at least $100 million across multiple plans. 

Merrill Lynch, Voya, and Prudential owned the podium for record keepers, with Nationwide and John Hancock coming in fourth and fifth. Voya made the biggest move up, having not ranked last year, while T. Rowe Price fell from second place in 2017 to seventh. 

[II Deep Dive: Merrill Lynch, Legg Mason, Captrust Top 2017 DC Providers Survey]

The record-keeping industry has been reshaped in recent years by consolidation and client pressure, according to Callan’s Jamie McAllister, a DC consultant and senior vice president. 

“As record keepers are realizing, it’s a fairly low-margin business,” she told II in a phone interview. “For them to be profitable, they have to be able to spread their costs over a larger participant base. Five years ago, record keepers would say they needed to have at least one million participants to make their platforms worthwhile. Now when I talk to them, they say more like three to five million. The more that they can achieve scale, the more cost efficient they’re going to look to plan sponsors.” 

Merrill Lynch and Prudential each scored another top-five position in the larger DCIL survey, making them the two companies with multiple placings. Last year, only Merrill Lynch had that distinction, coming in second as a broker-dealer — one spot higher than this year’s third-place finish — and leading the record-keeping category. 

Prudential’s investment arm PGIM, meanwhile, broke into the top five for DCIO, coming fifth behind leader J.P. Morgan (#3 in 2017), BlackRock (#4 in 2017), OppenheimerFunds, and fourth-place finisher Legg Mason (#1 in 2017). 

“We are a top-10 DC asset manager, with $170 billion in DC assets,” said Josh Cohen, PGIM’s managing director for defined contribution. “Certainly a fair amount of that is on our record-keeping platform, and other clients are DCIO, which other record keepers administrate.  seeing the benefits of both sides of our businesses.” 

Overall, Cohen said, “there’s much more of a focus on outcomes, when it comes to solutions that advisers are looking for. It’s not just about features, the total cost, and bells and whistles on the website. It’s about what’s going to produce better outcomes for the member.”

The top-ranked DC investment providers came as no surprise to one industry expert. 

“J.P. Morgan in particular has had very strong success in terms of distribution of their target-date funds,” explained Jessica Sclafani, director of retirement for research firm Cerulli Associates.

At the end of 2016, J.P. Morgan was the fifth-largest target-date fund manager by assets, Cerulli data showed, with an exceptional 24 percent growth rate year-on-year. “Increasing target-date fund assets by a quarter in one year is impressive,” Sclafani said. “A recognized brand is very important for distribution, and J.P. Morgan has a very well-known and recognized brand. That has served it well among advisers.”

BlackRock, she said, is the best example of a pure DCIO, managing major asset volumes without an attached record keeper. “And that’s a hard thing to do.”

Among broker-dealers, Captrust defended its number one ranking. Pensionmark, Merrill Lynch, GRP, and UBS rounded out the top five. Pensionmark was the only new entrant this year versus 2017, replacing Morgan Stanley, which fell off the leaderboard.  

Again, the consistency in leading providers did not surprise Sclafani. “Change in the DC industry occurs slightly faster than a glacial pace,” she concluded.

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