forces of change in an evolving retirement market · forces of change in an evolving retirement...

Forces of Change in an Evolving Retirement Market

How regulation, innovation and demographics converge to create new opportunities for investment managers and plan sponsors alike

Forces of Change in an Evolving Retirement Market | 2

EXECUTIVE SUMMARYThe retirement market is maturing as transformative trends play out. Responsibility has shifted from

employers to individuals, and defined contribution (DC) plans have become firmly entrenched as

the primary U.S. retirement solution.

A closer look at DC reveals opportunities for players of all types, incumbents and new entrants

alike. In identifying these opportunities, it becomes apparent that the historical drivers of

retirement market growth will be the same drivers of growth tomorrow. These drivers —

demographics, regulation, investment vehicles and strategies — are now coalescing around the

goal of improving retirement outcomes and meeting the needs of plan sponsors, plan participants

and retirees (Figure 1).

As these forces converge, pockets of opportunity emerge for investment managers and plan

sponsors. Continued innovations in these areas can vastly improve retirement outcomes when

interwoven: asset allocation solutions, alternative investments, open architecture, product

packaging, and customization. More important, no product opportunity stands on its own in

reaching better outcomes. Only through thoughtful collaboration can these themes come together

to create a better retirement outlook for Americans.

FIGURE 1 Forces of Change

Source: SEI.

R

DREGULATION

DEMOGRAPHICS

INVESTMENT STRATEGIES

BETTERRETIREMENTOUTCOMES

REGULATIONLifetime income illustrationsLifetime annuities as QDIAFiduciary standard

INVESTMENT STRATEGIESOpen architectureIncome, annuities and alternativesAsset allocation solutions

VEHICLESFlexible pricingCITs and ETFsCustom solutions

DEMOGRAPHICSIncreased contributionsDelayed retirement

VEHICLES

IS

V


HOW THE RETIREMENT MARKET HAS EVOLVEDAt $25 trillion in assets, the retirement market is central to the investment industry, having been

shaped over the last 40 years by regulation, innovation and demographics (Figure 2). Nearly 59%

of retirement assets now reside in individual retirement accounts (IRAs) and DC plans (Figure

3). This is a significant increase in share of total retirement assets from 30 years ago, when

individually directed accounts represented only 19%, but defined benefit (DB) plans accounted for

69% of total retirement assets.

FIGURE 2 Total U.S. Retirement Assets

*Data reflects year-end totals, apart from 2015, which reflects assets as of June 30.Source: Investment Company Institute.

FIGURE 3 Historical Share of U.S. Retirement Market by Plan Type

*Data reflects year-end figures for 1975 and 1995; 2015 reflects data as of June 30.Source: Investment Company Institute.

0.5 1.0 2.3 3.97.0

11.614.6

18.1

24.8 $ trillions

1975 1980 1985 1990 1995 2000 2005 2010 2015*

1% 18%

38%22%

9%12% 18%

25%

22%

19%

7%8%

31%

28%12%

15%

6%9%

IRAs

DC

Private DB

Gov’t DB

Federal DB

AnnuitiesDB

% of market share

1975 1985 2015*

1975 1985 2015*05

10152025303540

IRAs

Annuities

DC

Private DB

Gov’t DBFederal DB

1975 1985 2015*05

10152025303540

IRAs

AnnuitiesDB

DC

Private DB

Gov’t DB

Federal DB


The power of regulationThe shift toward individual responsibility originated with the Employee Retirement Income Security

Act of 1974 (ERISA) and the creation of the 401(k) plan (Figure 4). Initially, DC plans were envisioned

as supplemental savings plans, joining employer-sponsored pensions and Social Security, to

create a traditional three-pillar retirement savings program. The environment changed; however,

as costs and risks associated with maintaining a DB plan rose throughout the 1990s and 2000s,

to a point where many plan sponsors have not only closed or frozen their DB plans, but most new

companies now offer only DC plans. Nearly three out of four DB plans are closed to new hires and

a significant portion have stopped accruals for participants (Figure 5).

The Pension Protection Act of 2006 resulted in an increased use of automatic plan features due to

safe-harbor protection. Specifically, this legislation has fueled the growth of automatic enrollment

and the resulting assets invested in qualified default investment alternatives (QDIAs) such as

target-date strategies. Fast forward to 2015, DC now accounts for approximately $7 trillion

in assets.

FIGURE 4 Impact of Regulation on the U.S. Retirement Market

Source: SEI.

20151974

1974 2006

DC plans were originally meant to provide supplemental savings alongside employer-sponsored pensions and Social Security

By 2015, DC plans account

for $7 trillionof retirement

assets

Rising costs and risks in 1990s and

2000s cause some firms to close or freeze DB

plans while many newer companies only oer

DC plans

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

The Pension Protection Act fuels growth of automatic enrollment and use

of target-date strategies

ERISA begins shift toward

individual responsibility and lays the ground-work for 401(k) plans


FIGURE 5 Current Status of Firm’s DB Plan

Source: SEI Survey, 2016 Defined Contribution Outlook.

Investment vehicles evolveThe second driver that has determined today’s DC landscape is the evolution of investment

vehicles. Without continued innovation, mutual funds and collective investment trusts (CITs) most

likely would have been replaced with different products in DC plans. Improved transparency,

trading and pricing advancements, new investment strategies, and lower fees all contribute to the

solid foothold maintained by these vehicles in the retirement market.

Approximately 75% of DC assets now reside in mutual funds and CITs.1 At year-end 2014, mutual

funds accounted for 56% of DC assets, up 233% over two decades, according to ICI data.2

While the tracking of CIT assets does not go as far back as mutual funds, these vehicles have

also demonstrated expansion in the last several years. It is estimated that CITs have grown to

account for one-fifth of DC assets in 2015.3 Relative to other options, mutual funds and CITs have

experienced consistent, if not growing, investor demand (Figure 6).

Terminating

Closed to all

26%Frozen

74% Closed to new hires

Active

35%

36%

3%


Use of other vehicles as core menu options — including separate accounts, company stock and

self-directed brokerage windows — have declined. These options cumulatively represented

about 30% of DC assets at year-end 2015. The two vehicles that have seen the largest decline

of DC assets are company stock and self-directed brokerage. Seen largely as a fiduciary risk,

401(k) plans sponsored by public companies have focused on unwinding employee allocations to

company stock. Self-directed brokerages also have risks associated with them, sometimes seen

as a Pandora’s box by plan sponsors. Exchange-traded funds (ETFs) also have faced considerable

challenges in adoption on core investment menus, but have experienced some traction via asset

allocation solutions.

FIGURE 6 DC Plan Assets by Vehicle

*Data reflects actual assets as of 12/31/2011 and projections for all other years.Source: Strategic Insight.

Favorable demographics for asset accumulationThe sheer size of the boomer generation, combined with high deferrals from base salaries as well

as the ability to take advantage of catch-up contributions, have contributed to the steady growth

of DC plan assets. For year-end 2013, well more than half (61%) of 401(k) assets were held by

participants in their 50s and 60s.4 ICI analysis of participant accounts indicates that tenure, salary

and age are correlated to 401(k) account balances.5 Balances peak as plan participants approach

retirement. Moreover, with approximately 10,000 Americans celebrating their 65th birthday every

day for the next 15 years, retirement funds continue to accumulate.6 That being said, the tide is

slowly shifting from accumulation to distribution and with it a shift of emphasis from institutional

to individual.

0

2

4

6

8

10

12

2011

$ trillions

$ trillions

2015* 2020* 2025*

2011 2015* 2020* 2025*

0

1

2

3

4

5

6

7

8IRAs

AnnuitiesDB

DC

Gov’t DB

Mutual funds

Separate accounts

Collective trusts Company stock Brokerage, ETF and other

Mutual funds

Separate accounts

Collective trusts

Company stock

Brokerage, ETF and other


DEFINED CONTRIBUTION TOMORROW Regulation, product innovation and demographics are now converging to reshape the retirement

market. It is estimated that DC assets will surpass $10 trillion in the next decade, up from $6.8

trillion at year-end 2014.7 Net flow rates into DC are projected to remain positive, albeit decreasing

annually, averaging 1% over the next five years. While a large participant cohort is transitioning to

retirement, younger generations, regulation and investment innovations will help to mitigate the

effects of asset drawdown. Across DC plan types, 401(k) plans represent the bulk of assets

($4.7 trillion) and will continue to do so.8

Regulatory focus on retirement outcomes is at an all-time highThere are three notable areas of regulatory focus that have the potential to improve the retirement

outcomes of Americans: lifetime income illustrations, lifetime annuities in DC and the fiduciary rule.

These regulatory efforts create opportunities for asset managers and plan sponsors to be creative

with annuities and investment strategies within DC plans.

Lifetime income illustrationsThe regulatory agenda largely points to lifetime income, as demonstrated by several simultaneous

efforts. The U.S. Department of Labor (DOL) proposed requirements for lifetime income illustrations

on participant statements may alter participant savings behavior by creating awareness of retirement

income needs. Academic research has shown that better information and understanding of income

needs could impact behavior when immediate action is available. Behavioral changes could result in

increasing deferral rates, signing up for auto-escalation or deferring retirement.

Lifetime annuities in QDIAsA second regulatory effort is the DOL and Treasury guidance on lifetime annuities in QDIAs.

This guidance permits, under specific circumstances, the offering of a QDIA that includes lifetime

income streams for participants. In addition, the guidance establishes certain safe harbors for the

product sponsors to use when selecting an annuity provider. While the immediate impact may

be nominal for boomers (based on low adoption rates thus far), lifetime annuities may drastically

improve the retirement outlook of Generations X and Y.


Fiduciary ruleThe third effort that has recently gained the most attention (both pro and con) has been the

proposed fiduciary rule. While the impact of the DOL’s efforts to apply a fiduciary standard to IRAs

can only be assumed at this point, it is possible that assets will remain in employer-sponsored

retirement plans longer, stymying the rate of rollovers into IRAs. The reasoning behind this

projection is tied to the modification of the fees related to the provision of IRA services that is likely

to take place following the finalization of the rule. As a participant in a 401(k) plan, a participant

generally has access to lower-cost investments that have been reviewed by a plan fiduciary and,

most likely, are not available for direct investment outside the plan.

Under the revised rule, both the recommendation to roll over assets to an IRA, as well as the

recommendation on what products in which to invest those IRA assets, would be viewed as

fiduciary advice under the proposed rule. This would, in turn, subject the advisor to stringent

fiduciary requirements under ERISA as well as ERISA’s prohibited transaction rules. Therefore, an

advisor bound by a standard to place clients’ interests ahead of the advisor’s own interests would

be committing a prohibited transaction if he were to invest in a product that results in a variable-

based fee (that is, not a wrap or other flat fee).

This may move many low-cost IRA service providers, who generally tend to rely on fees and

commissions, out of the IRA market all together. These sweeping changes will challenge plan

sponsors, investment managers and broker-dealers to adapt, but will also offer opportunities to

those who are ready to evolve and innovate.

Product innovation focused on outcome-oriented solutionsThere are several threads of innovation that have emerged in DC over the recent years. While

each thread plays a role individually, only when woven together do they create a strong fabric.

These innovations include asset allocation solutions, alternatives, open architecture, product

packaging and customization.

Asset allocation solutionsThe strategies standing to benefit the most from the regulatory changes are solutions-oriented

strategies (Figure 7). Increasing adoption of automatic plan features and innovation with retirement

income has increased preference for target-date strategies and managed accounts as QDIAs. As

a result, target-date assets grew quickly on the back of strong flows over the past decade, in stark

contrast to target-risk strategies, which experienced anemic overall growth over the same period

(Figure 8).

Target-date approaches appear to be a clear favorite of regulatory agencies, as identified by

guidance related to the use of lifetime annuities noted above. Current areas of innovation within

the $1.3 trillion target-date market include tactical flexibility, use of alternative strategies and open

architecture.9


Managed accounts are another asset allocation solution that provides sophisticated drawdown

strategies, often taking into account specific guaranteed income products. According to

PLANSPONSOR, managed accounts oversee $200 billion in participant assets.

Managed payout funds are a more recent addition to the retirement solutions scene. Structured

to provide a consistent, inflation-adjusted monthly income stream for a fixed term or the life of the

retiree, these funds resemble annuities. But they differ in some important ways, not least of all by

being less expensive and more flexible. Payouts, however, might vacillate significantly depending

on fund performance. In any case, this type of fund, where the manager is responsible for

distribution in addition to asset allocation, could well become another popular default option.

FIGURE 7 QDIAs Selected

Source: Plan Sponsor Council of America (PSCA).

FIGURE 8 Cumulative Net Flows to Target-Date and Target-Risk Funds: 2006–2015

Source: Strategic Insight.

72.1% 0.3% Money market

1.0% Other

0.7% Stable value

4.5% Managed accounts

8.6% Target risk

12.8% Balanced funds

Target date

0

100

200

300

400

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ billions Target risk Target date


A growing role for liquid alternativesInvestment innovation in liquid alternative strategies aptly fits into the target-date tide, as many

portfolio strategists call for a 10% to 20% allocation to alternatives in order to be effectively hedged

against daily risk and outlier events. The potential for liquid alternatives is quite large, should a

minimum allocation be achieved. For perspective, if all target-date strategies were to adopt a

modest 7% allocation in liquid alternatives, then a $90 billion market opportunity is created.

Outside of target-date, there are opportunities for multi-strategy alternatives to be offered on the

core menu or as a specialty strategy only available through a managed account. The scope of

alternatives available is also expanding, as asset classes such as private equity are increasingly

made available for embedding into retirement plans.

Liquid alternative assets plateaued in 2015 (Figure 9), but certain categories continue to gain

momentum, notably multi-strategy. The potential for inclusion in retirement plans may very well

reinvigorate product development efforts among managers, leading to greater scale as well

as scope.

FIGURE 9 Liquid Alternative* Fund Assets

*All U.S. mutual funds and ETFs in Morningstar’s “Alternative” categories.

Source: Strategic Insight.

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ billions Assets Flows


Open-architecture expansionManager diversification has the

potential to improve participant

outcomes, but the bulk of DC assets

and solutions-oriented products were

historically invested by managers affiliated

with the plan’s recordkeeper. The trend

toward open-architecture plans and the defined

contribution investment only (DCIO) market is

driven by the fact that few investment organizations

can manage all strategies well and that having all assets

managed by one manager has embedded risks. In addition,

the regulatory drive toward fee transparency has led to an

unbundling of services — separating back-office services such as

administration and custody from investment management. Some of the

largest bundled providers are those with strong target-date and stable

value businesses.

The opportunity of DCIO cannot be ignored if managers want to take part in the

new retirement landscape. Strategic Insight estimates that DCIO accounted for $3.4

trillion, or 57%, of total DC-managed assets (excluding self-directed brokerage and

company stock) at year-end 2014. Not factored into this sizing is the trend of target-date

funds featuring third-party managers — which accounts for another $100 billion of assets.10

DCIO assets are projected to account for 63% of the market by 2020.11

Custom solutionsPlan sponsors are evaluating custom asset allocation solutions to meet unique plan demographic

needs and to incorporate sophisticated investment strategies in a cost-efficient manner. In

February 2013, the DOL released guidance on target-date fund selection, in which one of the tips

was to “Inquire about whether a custom or nonproprietary target-date fund would be a better fit

for your plan.” Custom solutions have long been considered an option available at only the largest

plans, but increasingly customization is moving down-market in a cost-efficient manner. There are

three ways in which customization is moving down-market: participant advice, managed account

solutions and turnkey solutions.


A large corporation required a pooled vehicle solution

A large U.S.-based global corporation with several operating entities made a strategic decision to divest its core business into multiple business units. The company needed a solution that enabled them to preserve the open-architecture design and economies of scale that they had achieved in their $12 billion 401(k) plan. The company approached Callan Associates* (and eventually SEI Trust Company) to help them explore converting their existing separate account structure within their 401(k) plan into a multi-manager, multi-fund collective investment trust. Because a CIT structure expressly permits the commingling of assets across multiple plans, it allowed the company to provide the same investment fund lineup, while supporting the seamless transition for 401(k) participants as the company split into two business units and split its 401(k) plan into two separate plans.

To accommodate an investment platform of this size and complexity, the CIT needed to have a number of sophisticated operational and investment attributes including:

› Investment advisory breadth and expertise to conduct due diligence and ongoing fiduciary oversight for 21 different multi-manager funds employing 26 separate sub-advised and/or sub-fund mandates across a complete range of asset classes and strategies

› Operational flexibility to invest trust assets directly into securities, other CITs and mutual funds, and support the seamless replacement, termination, or addition of sub-advisors or sub-funds within the multi-manager structures with no impact on participants

› Automated trading support for sophisticated daily cash management and rebalancing algorithms employed across target-date funds, asset class funds, sub-funds and separate accounts

› NSCC trading support for all funds offered, and seamless integration with the recordkeepers and plan custodians for the two plans

› Multiple share classes to support differing daily fee accrual requirements across the two companies

› Customized and sophisticated quarterly multi-manager fund fact sheets meeting disclosure requirements for 401(k) options, including DOL requirements for QDIA options

› Institutional quality reporting on a daily, monthly and quarterly basis. In addition, consulting support for the investment staff and oversight committee at each of the two companies

This was a highly sophisticated and complex project that needed to be completed in less than six months. In this time frame, SEI Trust Company and Callan:

› Identified and hired a new custodial bank

› Negotiated all 26 sub-advisory or fund-trading agreements

› Opened 21 new funds

› Built a new trading system to support the rebalancing and the daily cash flow requirements of the CIT structure

The approximately $12 billion conversion was completed on time and without any operational issues. From a participant’s perspective, the conversion was completely seamless; trading continued with business as usual. The CIT offers the company cost efficiencies because both entities will benefit from investment into one pooled-fund vehicle structure. Finally, the CIT structure provides efficiency and flexibility to offer a customized, effectively priced solution for the participants of the plans invested in the CIT.

* Callan is an employee-owned investment consulting firm that provides institutional investors with tailored strategies that are uniquely backed by proprietary research, an industry-leading database and ongoing fiduciary education.

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Pricing and packaging of investment strategiesChoosing the most appropriate vehicle structure for a

plan can assist in reaching the goal of better outcomes;

particularly as this decision relates to investment

strategy, manager risk mitigation and fee awareness. As

such, the packaging of investment strategies is another

area ripe with innovation. Specifically, DCIO innovation

manifests itself by boutique managers implementing

turnkey solutions to offer their strategies in various

vehicles. Turnkey solutions for CITs help to ease barriers

of regulatory concerns, while turnkey solutions for

mutual funds ease product development challenges for

startups and facilitate offering institutional strategies to

new markets.

Fee disclosure and transparency are driving further

innovation in product packaging. Specifically, the

release of the final guidance and implementation

deadlines for service provider and participant fee rules

[408(b)(2) and 404(a)(5), respectively] as set forth by the

DOL, facilitates a plan sponsor’s understanding of the

available investment options and how they compare.

Pricing innovation in mutual funds (notably share

classes without embedded distribution fees, often

referred to as R-6 share classes) will help to further

solidify the vehicle’s position in the DC market. As of

September 2015, $291 billion resided in R-6 share

classes. Notably, retirement share classes are being

introduced not only with new funds, but are also being

added to existing funds in response to demands for

more transparency and lower fees.12

CITs typically enjoy a lower-cost advantage over

mutual funds primarily due to their differing regulatory

requirements. However, a representative and reliable

comparison between mutual fund expense ratios and

their CIT counterparts is not available due to current

data limitations.

Collective Investment Trusts

The basicsWhat are they? CITs are pooled institutional investment vehicles that are intended for use by qualified retirement plans and governmental plans, and are not publicly available. The trust must be established by a bank or trust company that will act as a fiduciary and maintain the ultimate responsibility for the discretion and control of the trust.

Who governs them? CITs are regulated and governed at the federal or state levels by the Office of the Comptroller of the Currency (OCC) or by state banking entities. Unlike mutual funds, they are exempt from SEC regulation and are not subject to the Securities Act of 1933 or the Investment Company Act of 1940.

In what markets are they available? CITs are available in both the DC and DB market. However, these vehicles cannot currently be used by most 403(b) plans, some 457(b) plans, 457(f) plans, funded welfare plans or IRAs.

The benefitsPricing: Generally CITs have a low-cost advantage over mutual funds due to different regulatory requirements and other factors.

Flexibility: Ability to offer multiple fee classes to clients, which includes a sliding fee schedule based on invested assets. Further, distinct service fee share classes can be offered.

Speed-to-market: The setting up of a CIT could take 30% to 50% less time than launching a comparable mutual fund while most often costing less.

NSCC trading: Trading through the NSCC allows CITs to provide the same operational efficiencies as mutual fund structures.


Despite this, across the gamut of asset classes, CITs offer daily liquidity and high transparency for

plan sponsors with a moderate degree of customization, which can help fiduciaries design an optimal

plan for their participant population. Unlike mutual funds and ETFs, CITs are not available in the retail

market (Figure 10).

FIGURE 10 Comparison of Investment Vehicles Used in DC Plans

Source: SEI.

FIGURE 11 Investment Vehicles Used by Size of DC Plan

*Outside of brokerage window.Sources: PLANSPONSOR and SEI.

0%

20%

40%

60%

80%

100%

% of plans

MFsSeparate AccountsCITsETFs*Other

Micro (<$5M)

Small ($5M - $50M)

Mid (>$50M - $200M)Large (>$200M -$1B)Mega (>$1B)Overall

Daily liquidity

Transparency for participant

Transparency for plan sponsor

Availability in retail market

Customizability

Yes

High

High

Yes

Limited

Yes

Low

High

No

Limited

Variable

Low

Moderate

No

High

Yes

High

High

Yes

No

MF CIT Separate Accounts ETF

OPEN


The economics of the DC market are changing

in other ways as well. The majority of plan

sponsors currently pay recordkeeping fees

via some form of revenue sharing (Figure 12).

Meanwhile, a growing number of plan sponsors

are shifting to a fixed fee per participant

system. Four out of 10 sponsors recently

surveyed by SEI say their organization now

uses this type of arrangement, despite it being

historically prevalent only among larger plans.13

Attracting institutional U.S. retirement plan assets with a CIT

Firm Profile: A large Midwest investment firm offering U.S., global and international investment strategies for individuals and families, financial advisors, and institutional clients (including pension funds, foundations and endowments).

The firm was founded upon the belief that delivering successful investment results for clients requires a consistent investment philosophy, a commitment to superior investment research and a high level of customer service. Over the years, the firm’s clients have grown but its philosophy and beliefs have remained unchanged.

In 2008, the firm began exploring opportunities to expand its product offerings and started investigating a collective investment trust (CIT) vehicle as an option for the DB or DC business within the U.S. retirement market. Their challenge was that they did not fully understand the operational infrastructure or administrative requirements surrounding a CIT, nor did the firm have the expertise in-house.

Although CITs were not a new product, the firm realized that many plan sponsors weren’t comfortable with the vehicle either, nor were they familiar with the nuances surrounding the vehicle.

In its research, the firm determined that the DB market was much more comfortable and informed about CITs. So they began targeting DB plans directly, working in tandem with consultants and other intermediaries who had direct access to the DB plan end client. Having CITs that had lower expense ratios than mutual funds and offered more flexible pricing structures were key selling points. Additionally, a CIT could be launched much more quickly than a mutual fund and had the flexibility to be tailored to the DB plan.

The firm recognized it needed an experienced partner to launch its first CIT, so it partnered with SEI Trust Company. SEI provided the expertise, technology and infrastructure needed to not only establish the CIT, but to educate the firm and its end client on the value and benefits of the vehicle. The CIT has enabled the firm to offer its DB plan clients a lower expense vehicle, which has significantly helped to strengthen and retain its relationships. With a CIT in place, the firm has also been able to compete in the market to win new client relationships.

Recordkeeper only

47%

32%9%12%

Recordkeeper and other outside funds

Outside funds only

Other

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FIGURE 12 Revenue Sharing Arrangements

Source: SEI Survey, 2016 Defined Contribution Outlook.


Participants becoming more aware of a lack in retirement preparedness Many baby boomers are extending their working years. According to a recent Transamerica

survey, 59% of workers in their 50s and 82% of those in their 60s or older expect to work past

age 65, and about half of all workers expect to work in some capacity after they retire.14 Echoing

this sentiment are 2015 findings from the Insured Retirement Institute (IRI), indicating that 36%

of boomers plan to retire either at or beyond age 70, nearly double the number of boomers that

reported the same projected retirement age back in 2011.15 The reluctance to retire may be driven

by many factors, but as the Transamerica study highlights, lack of adequate savings and the need

for income are the two largest drivers. Ultimately, this reluctance to retire will result in increased

contributions to retirement accounts and the preservation of assets already saved.

Meanwhile, younger plan participants are showing signs of saving even more than their elders.

Millennials, who now outnumber baby boomers, have begun to save more, putting aside a median

7.5% of their income, according to a study by Fidelity.16, 17

OBSTACLES AND OPPORTUNITIESOne challenge in tapping the DC-market opportunity is the fact that assets are highly concentrated

in a few large plans. In fact, less than 1% of DC plans control 70% of DC assets.18 Despite

the attractive mandate size, the institutional segment is highly challenging due to the asset

concentration, abundance of competition, fee pressure, gatekeeper control and length of

sales process.

There is also the continued growth of passive investing and the accompanying pressure on fees,

making it increasingly difficult for active managers to compete in the DCIO space.

Given the sheer size of the U.S. retirement market, international competitors view it as an

opportunity to expand outside their natural borders. Non-U.S. managers often face an array of

additional challenges in establishing a presence as a DCIO provider, starting as early as product

development and all the way through to the sales process. Understanding the market, seeking

the right business partners, and building an effective distribution strategy are common hurdles

experienced by non-U.S. managers.

Despite all of these hurdles, the U.S. retirement market offers tremendous opportunities to

plan sponsors and investment managers alike. Regulation, innovation and demographics are

converging to improve outcomes for future generations of retirees, presenting plan sponsors

with the opportunity to adapt and better serve their participants. Asset managers are also in

the position to make changes that can benefit not only their own bottom lines, but also have

a profound impact on the lives of countless retirees. By embracing complementary product

innovations — asset allocation solutions, alternatives, open architecture, product packaging and

customization — retirement prospects will gradually improve, giving way to more confident futures.


A non-U.S. manager, leverages the CIT structure and its U.S. affiliates to enter U.S. retirement market

Fiera Capital Corporation is a leading publicly traded, independent global asset management firm headquartered in Montréal, Canada. In addition to Canada, Fiera also has U.S.-based SEC-registered affiliates with offices in New York, Boston and Los Angeles. Operating as a full-service, multiproduct investment company, Fiera offers international equity and fixed-income management as well as depth and expertise in asset allocation and alternative investment strategies.

To succeed long term in the asset management industry, Fiera believed that they needed to create scale in their operations and expand their business globally into unique markets. Fiera began researching opportunities to enter the institutional business of the U.S. retirement market. Prior to entering the market, however, they needed to fully understand the risks, costs and competitive landscape associated with the business segment.

In their research of the DC segment of the retirement market, Fiera found that the regulatory and compliance mandates associated with managing institutional assets were challenging. Additionally, brand-name recognition in the U.S. retirement business was paramount. Large cross-border, multinational sponsors exist in both Canada and the U.S., and Fiera realized that there were more similarities than differences between the U.S. and Canadian institutional business. There is a shift transforming the institutional market, with endowments and large pension plans leading the way. The world of institutional investment consultants had been much more fragmented and insulated; today they are located across the globe and are adapting their organizational structures to accommodate the U.S. institutional investment opportunity. To complicate matters more, convergence among traditional and alternative investments means that asset managers can no longer compete in silos.

Fiera determined that they had two choices to enter the U.S. institutional retirement market:

1. Organically develop the expertise and knowledge needed to establish their operations and expertise in-house.

2. Identify an established business partner with proven expertise in the institutional asset management business.

Because Fiera wanted to fast track their entry into the U.S. DC market, they did not want to invest significant time and resources to build expertise in-house. Instead, they looked for a business partner and a turnkey solution to help them get established quickly. At the time, Fiera was about a year away from considering a CIT vehicle. However, they were awarded a mandate and quickly needed to create a pooled vehicle to enter the DC market.

In their quest for a business partner, Fiera identified SEI Trust Company as an expert in the legal, compliance and reporting requirements for CITs that also had a proven track record in the market. Most important, SEI Trust Company would serve as an ERISA fiduciary and could provide ongoing advice and oversight unique to a CIT. Leveraging SEI’s turnkey solution, Fiera could benefit from a daily valued pooled-investment vehicle offering lower costs, operational efficiencies and the flexibility of multiple share classes; all of which were important to them and their client. Fiera Capital, Inc. the SEC-registered affiliate of Fiera Capital Corporation, was retained by SEI Trust Company to act as a sub-advisor for their international equity CIT.

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About SEISEI (NASDAQ:SEIC) is a leading global provider of investment processing, investment management

and investment operations solutions that help corporations, financial institutions, financial advisors

and ultra-high-net-worth families create and manage wealth. As of December 31, 2015, through

its subsidiaries and partnerships in which the company has a significant interest, SEI manages or

administers $670 billion in mutual fund and pooled or separately managed assets, including $262

billion in assets under management and $408 billion in client assets under administration. For

more information, visit seic.com.

About SEI Trust CompanySEI Trust Company (the “Trustee”) serves as the Trustee of the Fund and maintains ultimate

fiduciary authority over the management of, and the investments made, in the Fund. The Fund is

part of a Collective Investment Trust (“the Trust”) operated by the Trustee. The Trustee is a trust

company organized under the laws of the Commonwealth of Pennsylvania and a wholly owned

subsidiary of SEI Investments Company (SEI).

About SEI’s Investment Manager Services Division Investment Manager Services supplies investment organizations of all types with advanced

operating infrastructure they must have to evolve and compete in a landscape of escalating

business challenges. SEI’s award-winning global operating platform provides asset managers with

customized and integrated capabilities across a wide range of investment vehicles, strategies and

jurisdictions. Our services enable investment managers to gain scale and efficiency, keep pace

with marketplace demands, and run their businesses more strategically. SEI presently partners with

more than 300 traditional, alternative and sovereign wealth managers representing more than $15

trillion in assets, including 32 of the top 100 managers worldwide. For more information,

visit seic.com/ims.

About Strategic InsightFor the past 30 years, Strategic Insight has been at the forefront of thorough, unbiased mutual

fund industry research and business intelligence. We believe in the mutual fund industry. Our core

mission has always been to strengthen the industry and help our clients succeed in the global

marketplace by providing them with the research, data and analytical support they need to identify

product and distribution opportunities and make smart business decisions. As sincere industry

advocates, we provide products and services to a wide range of clients, including executives from

more than 200 investment management and insurance companies, distributors, investment banks,

hedge funds, consultants and law firms.

Strategic Insight sets the standard for trusted business intelligence and mutual fund analysis.

We offer the most comprehensive, accurate mutual fund information available to help our clients

direct their efforts wisely and grow their businesses. Strategic Insights parent company, Asset

International, delivers critical, cutting-edge data, research and marketing programs to mutual fund

companies, banks, asset managers and insurance companies worldwide.


SOURCES1 Strategic Insight, an Asset International company.

2 Investment Company Institute. “The U.S. Retirement Market, First Quarter 2015.” June 2015.

3 Strategic Insight, an Asset International company.

4 Investment Company Institute. “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2013.” ICI Research Perspective 20, no. 10, December 2014.

5 Investment Company Institute. “2015 Investment Company Factbook.”

6 Pew Research. “Baby Boomers Approach 65 – Glumly.” December 20, 2010.


8 Investment Company Institute. “The U.S. Retirement Market, First Quarter 2015.” June 2015.




12 PLANSPONSOR. “Inaccurate Facts: The fees and expenses of 401(k) and other defined contribution (DC plans).” January 2016.

13 SEI. “Defined Contribution Outlook: Do DC Plans Need to be Redesigned?” January 2016.

14 Transamerica Center for Retirement Studies. “16th Annual Transamerica Retirement Survey.” August 2015.

15 Insured Retirement Institute. “Boomer Expectations for Retirement 2015.” April 2015.

16 Pew Research. “This year, Millennials will overtake Baby Boomers.” January 16, 2015.

17 Money.com. “Millennials Are Outpacing Everyone in Retirement Savings.” January 7, 2016.

18 PLANSPONSOR. “2015 Recordkeeping Survey.” June 2015.

The Investment Manager Services division is an internal business unit of SEI Investments Company. Information provided by SEI Global Services, Inc.

This information is provided for educational purposes only and is not intended to provide legal or investment advice. SEI does not claim responsibility for the accuracy or reliability of the data provided.

©2016 SEI 160435 (3/ 16)

Corporate Headquarters — United States1 Freedom Valley DriveP.O. Box 1100Oaks, PA 19456+1 610 676 [email protected]/ims

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