Signs of the changes percolating in the retirement market wereeverywhere on Wednesday at Dimensional Fund Advisors’ first-everconference focused on the defined contribution space, from thejokes DFA’s David Booth told at the expense of the existing king ofthe retirement market, Fidelity, to the news of the investmentproduct DFA is rolling out to serve as a combination default optionand lesson in responsibility for employees who are the leastengaged in their retirement planning.

Nearly 200 advisors, plan sponsors, consultants andrecordkeepers attended the one-day conference, held in the rarefiedatmosphere of Chicago University’s Booth School of Business—namedafter DFA cofounder, chairman and CEO Booth, who had made a $300million donation to the school.

The gathering, which also included a keynote speech by formerU.S. Senator and New York Knicks star Bill Bradley, kicked off witha short speech by Booth, DFA’s cofounder (with Rex Sinquefeld),about the history of the fund company. Austin, Texas-basedDimensional, which had $232 billion under management as of June 30,is known for its ties to academia, its passive investment approachand its cult-like following among advisors. The company has beenworking on penetrating the retirement plan market for the pastcouple of years. It has $17 billion in retirement assets, up from$11.2 billion on Dec. 31st of last year.

Booth’s speech helped introduce a new DFA product it hopes willcatch on with advisors and plan sponsors: Managed DC. It was rolledout overseas about four years ago and is used by three large plans,each with thousands of participants. “So we have three clients,”Booth said, then paused for the punch line. “So we don’t have asmany clients as Fidelity, but about as many happy clients.”

Managed DC puts employees into a set of DFA funds that aredesigned to produce an income stream in retirement while minimizingdownside risk. It also gives employees updates that tell them ifthey are on track to be able to produce the income stream they willneed in retirement and gives them options to increase theircontributions or opt for more risk if they aren’t on track.

Robert Merton, distinguished professor of finance at theMassachusetts Institute of Technology, who designed the product,emphasized the shift in mindset from accumulating wealth toproducing income, which he said needs to occur. “Jane Austen had itright,” he said.

As readers of Austen’s early 19th century fiction, such as Prideand Prejudice, will know, the characters (usually the overbearingmothers) referred to a man’s value in England’s early 19th centuryon an annuitized basis. “So Mr. Darcy didn’t have 100,000 pounds;he had 5,000 a year,” Merton said, referring to his annual incomerather than the much larger sum he had inherited.

A Counter to Target Date Funds?

Managed DC can be seen as a counter to target date funds, whichproved hugely popular but stumbled during the financial crisis.Like target date funds, Managed DC differs from old-fashioneddefined benefit plans and annuities in one important way: theincome is not guaranteed.

Advisors at the conference—most if not all already clients ofDFA—said they saw promise in the new product, and that they’reexcited in general at DFA’s push into the retirement market.

“I’m impressed at the human capital in the room,” said ErichReinhardt, vice president of advisor relations for Loring Ward, aSan Jose, Calif.,-based all-DFA RIA with $700 million in AUM. Itoffers retirement services to smaller advisors and has gatheredabout $80 million through 70 advisors placing business with it.

Attendance at the conference was unexpectedly strong: 190attendees versus the 125 DFA had first expected. Many advisors havebeen seeking to add 401(k) business in part to provide a stableincome stream that they didn’t have during the financial crisis,but also because reforms in Washington, D.C., provide increasedopportunities to fee-only and fee-based advisors.

One key to DFA’s growth so far is that it is working with anumber of large advisors like Loring Ward, who act as TAMPs,offering a suite of retirement plan services (like recordkeeping,investment advice and DFA funds) to smaller advisors. About 50% ofthe growth comes from plans, and about 50% from advisors, said TimKohn, DFA’s VP and head of defined contribution sales. Thedistribution strategy could be seen at work at the conference:Reinhardt said Loring Ward might add Managed DC to itsplatform.

Aspire, a St. Petersburg, Fla.-based recordkeeper, is addingManaged DC to its platform, which serves 125,000 participants in4,500 plans with $4 billion in assets, in November, said PeteKirtland, president. “It’s not a silver bullet,” he said. “But it’sgoing to improve participant behavior and improve the likelihood ofretirement success.”

Dollar Bill and the State of Retirement

Former Sen. Bradley added the 30,000-foot view to theconference. He noted that Washington, D.C., will have to grapplewith the retirement system, including Social Security, andpredicted it would happen “in the first year of the new president’sterm.” That would be beneficial, he argued. "America has tohave a system to allow the majority of Americans to have asuccessful retirement."

He suggested that the retirement age should be raised and thatsome income tax proceeds should be devoted to Social Security. Healso said that state and municipal retirement pension plans shouldbe swept into the Social Security system—and argued that thepolitical pressures are building to force change.

“Right now, you have a steel worker, maybe from the south sideof Chicago here… He lost his job, he lost his health care, he got30 cents on the dollar for his pension. You also have state andmunicipal workers, teachers with very rich pensions.

“So you’re saying to the steel worker that in order to pay thislucrative defined benefit plan, we’re going to raise yourtaxes?

That’s not a winning political strategy.”