Consulting firms reported an increase in their defined contribution client base from 2011 to 2012, according to PIMCO’s “2012 Defined Contribution Consulting Support and Trends Survey.” The survey solicited information from 39 consulting firms across the U.S. that serve more than 3,600 plan sponsors with aggregate DC assets of more than $1.8 trillion as of Dec. 31, 2011. The average number of clients went from 94 in 2011 to 110 this year.
It also found that 71 percent of clients served by consultants are corporate plan sponsors. Thirteen percent are for-profits and 8 percent are public plans. On average, 45 percent of firm revenue comes from these firms’ DC business. The survey found that the fastest-growing DC areas reported by consultants include total plan cost/fee studies, DC plan design, DC recordkeeping searches, manager selection and monitoring and target-date asset allocation creation.
Of those surveyed, 97 percent recommend that clients offer a target-date or target-risk investment tier. Sixty-nine percent actively promote custom target-date strategies or support client interest in this area; 4 percent believe custom target-date strategies make sense for plans with $500 million or less; and about a third, 29 percent, of consultants believe a second target-date series or specific vintage may make sense.
The survey also found that 78 percent of firms suggest the addition of Treasury Inflation-Protected Securities to reduce risk in asset allocation strategies. Sixty-four percent suggest reducing exposure to risk assets as a risk-reduction approach and 65 percent believe that tactical asset allocation is critical for glide path management. Consultants suggest that the maximum percentage loss participants can bear is 30 percent at age 25, 20 to 30 percent at age 35, 10 to 20 percent at age 45, 5 to 10 percent at age 55 and 0 to 5 percent at age 65.
More than two-thirds of those surveyed felt that a custom target-date approach was an improvement over current packaged funds and almost two-thirds thought that managed accounts should be an opt-in asset allocation choice only.