Relationships with defined contribution investment-only (DCIO) providers can play an important role in your success and longevity with plan sponsors. But can you derive more value from your work with DCIO vendors?
Alignment and Consistency
Because investment management is the central element of the DCIO relationship, Todd Leszczynski, managing director, national sales of defined contribution with MFS, emphasizes the need for advisors to have confidence in a manager’s investment process. He highlights several key points to consider: Does a manager have a durable, repeatable investment process? Does their investment process and philosophy align with the needs of the 401(k) client? Also, does a manager create long-term value by delivering consistent investment results over time to meet the plan’s long-term needs?
Having a long-term asset mindset is critically important, Leszczynski says: “Knowing how plan design and the default structures are set up nowadays and making certain that those two components are consistent with the investment manager’s process is essential. What’s the balance of alpha generation and downside protection, and is this manager going to get me there?”
Take a Broad Perspective
Firms that derive the most benefit from their DCIO-partners look beyond the provision of investment and research functions, according to Brendan McCarthy, national sales director, DCIO, with Nuveen. “They see it as a more comprehensive collaboration that consists of investments, practice management and business development support,” he says. Advisors who adopt that broader set of requirements are “the firms that tend to get the most out of their DCIO relationships,” he adds.
Carey McKenzie, head of retirement advisory relations, U.S. Intermediaries-Retirement with T. Rowe Price, believes advisors that view the DCIO relationship as more of a partnership, versus a vendor relation, have more successful relationships. “That really is at the heart of a lot of the success that we see because it changes the mindset of how we engage with each other,” he notes.
Centralize contacts
The first step in optimizing DCIO relationships is for the plan advisor to develop internal systems that help their consultants utilize the DCIO resources, says McCarthy. That usually requires either a central location, separate person or combination of the two, to coordinate and communicate the DCIO-resources to consultants. “They bring in all the various tools, and they coordinate, organize and communicate them back out to their consultants in an effective manner, so consultants know, with ease, what tools are out there from their DCIOs that can help them,” he explains.
Identify the Right Solutions
McCarthy’s second recommended step is to create a short list of the best resources available to the advisory firm in the areas where they want assistance. He notes that dozens of DCIO firms and record keepers offer numerous solutions, and it’s easy for a firm to end up with hundreds of different, possibly redundant, tools. Successful firms narrow the list, evaluate the options and “select the one that they feel is best to help their advisors and best aligns with that consultant firm’s own messaging and values,” he says.
Identifying the right solutions and tools for consultants is a waste of time and money if they don’t use the tools properly and consistently. Firms that get most from their DCIO relationships promote the available resources and train staff extensively in their use. Additionally, they will encourage, or in some cases force, staff to use the DCIO tools and resources, McCarthy adds.
Leverage the Relationship
Every consulting firm has constraints on its capabilities that can prevent it from expanding into new lines of business. Teaming with the right DCIO vendor can overcome this hurdle by allowing advisors to leverage their existing skills and capacities. “Even at the very big advisory firms, they won’t have the resources decked against all the things that they may be interested in,” says McKenzie. He believes that partnering with a DCIO that has the desired expertise in areas like retirement income, financial wellness or analytic tools, for instance, can help an advisor overcome internal deficiencies. It also avoids the delay and expenses of building out internal resources.
Do the Homework
There is an unprecedented amount of change going on right now in the 401(k) market, McCarthy maintains, and leading DCIO firms have a wealth of resources to help consultants and their plan sponsors navigate those changes. The challenge for advisors often is learning about the resources and support that they can draw on. Overcoming that lack of information is a joint effort, he says: “It’s really incumbent on the DCIO firms out there to teach the consultants what resources they have to help them. But, even more so, it’s incumbent on the consultants to learn what valuable tools and support is available to them from their DCIO partners.”
