Brooke’s Note: This article was originally published in May but we republished it today because this event kicked off today in Chicago. It touches on a number of the topics we know RIAs are interested in finding out more about including: 401(k)s, TAMPs and DFA itself. The good news is that Lisa Shidler is there to cover it for us and we expect she will have some interesting observations to make in the next day or two.
In another sign that Dimensional Fund Advisors means business in the 401(k) market, the Austin, Texas,-based powerhouse of passive investing is hosting its first-ever conference for advisors in the defined contribution space.
The firm, which typically prefers to maintain a low profile, is hosting the free event on July 13 at the University of Chicago Booth School of Business. There is space for about 130 advisors, plan sponsors and consultants, says Tim Kohn, vice president and head of defined contribution sales.
Conference speakers include former Sen. Bill Bradley, David Wray, president of the Profit Sharing/401(k) Council of America, and Robert Merton of MIT.
By devoting considerable resources to the 401(k) push, DFA seems to be listening to some of its mega-clients, including Buckingham Asset Management, Loring Ward and Prudent Investor Advisors. Each of these companies is an RIA that serves as an outsourcer of investment management for advisors.In turnkey asset management programs, 401(k) assets are still a relatively small amount of their totals, but that pool of assets is growing. See: Giant DFA customer puts young CEO in charge to execute ambitious national plan and Buckingham expedites turnkey 401(k) strategy by buying a fellow DFA TAMP.
For years, says Dave Butler, director of global financial advisor services for DFA, in an interview several months ago, DFA had noticed that 75-80% of its advisors had not opted to work in the retirement space, even though they had opportunities to do so. They were unfamiliar with the service providers and the fiduciary requirements that come along with ERISA plans, and the fee structure was unfamiliar. See: Head-to-head: How one advisor went up against a giant of the retirement plan world and won..
At some point, Butler said, “the strategy light went off. ... This is a TAMP concept.” The company began working with TAMPs to set up a suite of retirement services for advisors.
The fees on the plans vary. DFA gets a fund management fee of 30 basis points if it is developing a diversified portfolio, with the TAMP, other service providers and the advisor also earning varying fees. Buckingham provided three sample pricing scenarios a few months ago, with the percent quoted the total cost to the plan sponsor/plan participants: $2mm plan with 10 participants = 1.45%; a $20mm plan w/100 participants = 0.83%; and a $50mm w/500 participants = 0.77%.
That fee structure will likely make the TAMP advisors particularly competitive in the underserved small plan market.
Competing against classic players
“This allows advisors to compete against the classic players in the space,” said Butler. Those classic players include mutual fund and insurance companies.
DFA is aiming to become a Tier 1 defined contribution manager, Kohn said, defining that as companies with $20 billion in AUM. As of 12/31, the company had $15 billion in defined contribution AUM. The total US Institutional retirement AUM on that date was $53.5 Billion, including defined benefit and defined contribution assets, but not ,including E&Fs, corporate cash, foreign assets, non-DC advisors channel assets.
DFA’s timing in making a push into this market seems impeccable. See: Dimensional Fund Advisors still has low RIA acceptance rate and stunning growth
The passive investment strategy has been making major inroads in the retirement market in recent years. Because of new fee-disclosure regulations, low-fee options such as passive funds are expected to gain even more traction in the market. In addition, there’s growing interest on the part of consumers in passive investments.
Timing right for passive strategies
According to the Profit Sharing/401(k) Council of America, 82% of plans have a passive investment alternative. “If we go back five years, it was 67%,” said Wray.
Wray said he noticed that DFA was working to get deeper into the market about six moths ago — and is happy to see that it is.
“PSEA is very interested in having the broadest number of organizations competing to provide services,” he said.
This article was corrected to more accurately represent the fees on the plans, and to make it clear that plan providers and consultants may also attend the conference.