Sales of ‘investment-only’ assets shrank less than retail funds, FRC finds

Money managers saw assets sold through unaffiliated third-party defined contribution record keepers shrink less than their retail mutual funds last year, according to a report released yesterday by Boston-based Financial Research Corp.

Of the 15 asset management firms surveyed in March, which represented $470 billion in the so-called investment-only assets, or roughly 30% of the assets industrywide, managers reported that these assets had declined 16% as of December 2008, compared with 2007, the report said.

Assets in retail long-term mutual funds dropped more than 30% on average in the same time period, FRC found.

Among the leading factors behind the asset retention in the defined contribution sector were participant inertia and systematic payroll deductions, the report concluded.

“Most participants don’t tend to do anything [differently] or look at their defined contribution plan contributions,” said Luis Fleites, vice president and director of retirement markets at FRC.

“These funds also have money coming into them from a payroll deduction basis, which helped to offset some of the losses.”

In addition, the study found that sales teams dedicated to this market in general did not experience layoffs due to the economic downturn.

“For the most part, a lot of these are relatively small teams to begin with,” Mr. Fleites said.

“You cannot downsize that team and be competitive in this market. And with the growing opportunity in the defined contribution market, it’s not the place where a firm wants to downsize.”

The biggest challenge facing the investment-only defined contribution market is legislation that could have an impact on re-enrollment, Mr. Fleites added.