The retirement asset management business is feeling the pinch.
Fred Barstein, founder and CEO of The Retirement Advisor University,
recently pointed out that asset managers are seeing margins shrink. The increasing use of managed accounts and index strategies instead of target-date funds, as well as record keepers rolling out their own investment products, threatens to squeeze fund managers out of the defined-contribution marketplace.
"Record keepers are in control," Mr. Barstein said. "They have the access, the data, they're client-facing and have all the accounts. They know when someone is rolling over, and they're interfacing with the plan sponsor."
But don't expect the asset managers to just roll over. As Dr. Ian Malcolm
said in "Jurassic Park," "Life finds a way." With 90 million investors and trillions of dollars up for grabs, expect firms to find new ways into the DC market.
One possibility
What could this pivot look like? One possibility is asset managers investing more in technology.
Look no further than what the industry's leader in assets under management has been up to. In December, BlackRock
announced a partnership with Microsoft to develop what they call a "next-generation retirement platform."
The companies aren't yet sharing details, likely because the project is still early in development, but the general idea is to combine Microsoft technology with "next-generation investment products" created by BlackRock.
Mr. Barstein sees the investment in technology as an opportunity to distribute investment products directly to plan participants without working with an adviser. It also taps into the market made up of the millions of people who can't afford to work with a traditional financial adviser.
Plan sponsor demands
Technology could also position
BlackRock to meet plan sponsors' demand for increased customization, managed accounts and better digital experiences in DC plans.
The underlying products aren't as important any more, said Neil Bathon, founder and partner of Fuse Research Network; the winners in the retirement market will be the firms that can use technology to improve plan participants' engagement, outcomes and retention.
"You used to be able to get a big plan sponsor to engage with you if you had better education, or a more thoughtful glide path for a target-date fund," Mr. Bathon said. Nowadays, everyone has the same basic investment offerings. "It's what you can do for the participant that will determine the winners."
Microsoft is far from BlackRock's first foray into consumer-facing technology. The asset manager was an early investor in the digital advice company Personal Capital and has a stake in
micro-investing robo-advice app Acorns and a product partnership with
Betterment.
"Competitors are locked somewhat into a mindset that they can't compete directly with advisers," Mr. Bathon said. "BlackRock has a willingness to go direct."
BlackRock hasn't avoided the adviser space, either. Earlier in December, the company
integrated its iRetire income calculator with eMoney Advisor, potentially getting BlackRock's retirement solutions in front of the 50,000 advisers who use the
financial planning platform.
The asset manager also
acquired a 4.9% equity stake in fintech giant Envestnet (which, by the way,
has a new digital annuities marketplace) in November, and is providing
risk analytics software to Morgan Stanley's
new adviser technology suite. In 2015, BlackRock acquired FutureAdvisor, which now powers digital advice platforms at banks and broker-dealers.
"BlackRock actively looks for ways to reduce friction to tools that help advisers have more meaningful conversations with their clients. This includes access to tools like iRetire that advisers use to help clients understand how to save for and spend in retirement," said Venu Krishnamurthy, co-head of Aladdin Wealth Tech, BlackRock's risk-management technology.
It's not hard to see where this is all heading. Whether an investor is saving for retirement or investing in a brokerage account, and is self-directed or working with an adviser, BlackRock will be there, happy to provide investment products.
"They are buying and building services that let them compete across all channels," Mr. Bathon said.
Will others follow?
The question now is whether product-focused DC asset managers will follow suit.
Several firms have joined Envestnet's Insurance Exchange, but haven't said much about investments in consumer- or adviser-facing technology.
"We don't have a lot of examples yet," Mr. Barstein said. "The most we can do is speculate."
