RK Choice Impacts Service Provider Selections

February 10, 2010 (PLANSPONSOR.com)–Defined contribution plans could end up with differing plan design features and differing results depending on the choice of providers such as recordkeepers or investment consultants.

A news release about the U.S. DC landscape study by London-based  PensionDCisions, a DC plan consultant, said selection of recordkeeper is an important factor in a plan’s use of an investment manager, while the selection of an investment consultant is an important factor in determining the use of active management strategies and customized investment solutions.

The study also found that 72% of responding plans use an off-the-shelf target date fund and that in about half of these cases, the fund is selected from the same entity as that providing recordkeeping.  Also, 13% of plans use a customized solution, and for many of these, there is a lack of transparency regarding the underlying product composition and performance.

Plans using a customized default solution have, on average, $2.3 billion in assets, while plans using off-the-shelf default solutions have on average $2.2 billion in assets, the survey found.

According to PensionDCisions, a small group of providers holds the lion’s share of relationships in the categories of investment consulting, recordkeeping, and investment management.  Four investment consulting firms account for 58% of mandates, three recordkeeping firms account for 67% of mandates, and two investment managers account for 55% of mandates.