Demand for Custom TDFs Shifts DCIO Marketplace

August 10, 2011 ( - Cerulli's soon-to-be released report on the Defined Contribution Investment Only (DCIO) marketplace pins the legacy of DCIO as a retail business on the fact that individual investors have largely driven decision-making in this business.

However, as participant influence has diminished, DCIO is resembling more of an institutional marketplace. Cerulli says a catalyst for this shift was the introduction of target-date funds (TDFs).  

According to Cerulli, the DCIO opportunity is enhanced as providers explore more open-architecture solutions. One of these solutions will be the refinement and deconstruction of the TDF into the choice of a glidepath and the use of funds in the core lineup, which are monitored by the plan sponsor, to create a custom target-date fund, according to Kevin Chisholm, senior analyst and lead author of the report.  

Even smaller plans, those below $500 million and especially those below $50 million, can potentially tap into this glidepath resource.  

While glidepaths provided by recordkeepers allow for open-architecture TDFs with funds from a plan’s core lineup, further enhancement is still needed, Cerulli contends. These solutions must allow a fund to be included in the target-date allocation, but not be offered as a standalone option in the plan’s core lineup. An enhancement of this type provides diversification within the TDF to match pre-packaged TDFs, but does not complicate the core lineup. It further increases the significance of a successful DCIO strategy as TDF assets flow through to funds chosen for the core lineup. 

Asset management firms need a flexible approach in this segment of the market, since many firms with diverse structures and philosophies advise the sponsors of these plans.