RIA Aggregators Wield Growing Influence in Defined Contribution Market

RIA aggregator firms continue to vacuum up smaller outfits in the defined contribution space, giving them greater influence in the DC market, particularly in the $25 million to $500 million segment, according to a new report from Cerulli Associates.

Because of this market concentration, defined contribution investment-only managers must tailor their distribution strategies to the needs and objectives of RIA aggregators and other important DC plan intermediaries, the report said.

RIA aggregators such as Focus, Mercer and Hightower have been in a feeding frenzy this year, buying up firms across the U.S. The number of total deals in the RIA industry has hit record highs in 2021.

Aggregators’ Clout

More than 80% of corporate DC plan assets are mediated by advisors or consultants, according to the report. Considerable diversity exists among DC plan intermediaries, ranging from broker-dealer-based advisors in the micro plan market to institutional investment consulting firms at the larger end of the market. 

“More than ever, DCIO asset managers must hold a keen understanding of these various intermediary types, the needs of their plan sponsor clientele, and how to best engage with them,” Shawn O’Brien, senior analyst at Cerulli, said in a statement.

Managers are keenly focused on RIA aggregators’ growing influence in deciding DC plan investments. Cerulli’s research found that 66% of managers believe that aggregators have become a primary influencer in deciding DC plan investments in the $25 million to $250 million segment. 

For plans in the $250 million to $500 million range, this rises to 68%. 

“There’s no question that there’s been a shift in distribution dynamics,” O’Brien said. “Given the rising control aggregators have over plan assets, managers will need to recalibrate their distribution resources, identifying key points of influence in the investment decision-making process.” 

Many aggregator firms have taken an institutional approach to their investment decision-making, centralizing the due diligence and investment analysis at the home-office level, according to the report. 

These firms have thereby relieved their field advisors of most investment research and analysis responsibilities, enabling them to spend more time helping plan sponsors on their plan design, participant education and communications, and record-keeper oversight. 

Besides centralizing the investment research function, some RIA aggregator firms are leveraging their scale and investment expertise to create their own 3(38) open-architecture, white-label investment products and solutions, the report said.

For DCIO managers seeking to enter or expand into the aggregator channel, Cerulli recommends that they focus distribution efforts first and foremost on these firms’ home-office teams and secondarily on the large field advisor teams they employ. 

Beyond that, DCIO asset managers should familiarize themselves with advisor/consultant white-labeled investment products, and periodically assess product development efforts. 

“Managers that understand the investment decision-making process, advisor concerns, and potential platform changes on the horizon will be well poised to capture plan assets controlled by RIA aggregators,” O’Brien said.