Why Discretionary Investment Management for DC?

October 13, 2017

Big change brings big benefits to participants and sponsors

The changing DC marketplace has made it harder for DC plan sponsors to fulfill their fiduciary obligations. That’s why many are leveraging external expertise and resources to build the best investment options possible. A discretionary investment manager can help accomplish this. Also referred to as fiduciary manager, outsourced CIO, 3(38) manager or delegated investment manager, a discretionary investment manager brings:

  • Full discretion for investment decisions leading to improved committee focus
  • Simplified core menu and target date fund options with leading institutional investment managers
  • Proactive management with seamless manager changes
93% of sponsors said they have a fiduciary responsibility to make every effort to provide the best investment options possible.

Meeting your fiduciary requirements

Unlike traditional recordkeeping bundled arrangements, the discretionary model actually shifts the fiduciary liability to the discretionary investment manager, reducing the list of responsibilities for the sponsor and committee.

While simply choosing brand name funds provided by the recordkeeper might have been the “safe” choice in the past, pressures to provide participants with the best possible investment options has forced plan sponsors to investigate elsewhere. Regulators require prudent management and diligent oversight causing sponsors to be the target of increased litigation. Working with a discretionary investment manager can bring:

  • More sophisticated investment approaches for participants increasing the likelihood of achieving their retirement goals

  • Better fiduciary and risk management profiles for the plan sponsor

82% of sponsors offering DC plans said that their DC participants do not have access to the same investment money managers used in the DB plans.

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Sophisticated funds through an institutional approach

Discretionary investment management brings specialist, institutional quality managers and a broad range of asset classes to create more sophisticated portfolios much like those used in Defined Benefit (DB) plans. The investment performance of DB plans has historically been better than DC plans because of enhanced diversification, manager specialization and professional oversight.1 In a recent poll, 82% of sponsors offering DC plans said that their DC participants do not have access to the same investment money managers used in the DB plans.2

 

    Knowledge Center Video: What to Know Before Making Any Change to Your DC Plan Time to review your DC plan so participants are better prepared for retirement? Know the answers to the 5 Ws first.

    Simplified options for participants; fewer responsibilities for committees

    As a discretionary investment manager, we approach the menu offered to participants much like a large DB plan. Because we implement a multi-manager investment approach, we take advantage of favorable manager fee arrangements due to economies of scale, seamless manager changes with no disruptions or blackout periods and broad manager diversification.

    A multi-manager approach means simpler options for the participant, but also brings enhanced exposure to top managers and asset classes through offerings like:

    Streamlining the investment menu makes selecting investment options easier for participants while still offering them broad diversification and quality managers.

    The world of DC plan management has changed, and sponsors know it. How can you make the right changes to better support your participants in their goals? Using a discretionary investment manager to build the plan lineup creates a flexible, diverse model with increased risk protection for the sponsor and risk mitigation for participants.

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    Legal Note

    1 Source: Center for Retirement Research at Boston College, “Investment Returns: Defined Benefit vs. Defined Contribution Plans,” December 2015. Authors’ calculations based on U.S. Department of Labor (DOL), Form 5500 (1990-2012). Difference in value based on $100,000 initial investment compounded over the period of 1990 to 2012.

    2 Source: SEI 2016 Defined Contribution Poll, Part 1:“Do DC Plans Need to be Redesigned?” The poll was completed by 231 executives, representing DC plans ranging in size from $25 million to over $5 billion. Of the respondents, 47 are current clients of SEI. The poll was conducted in November/December 2015.

    Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.