A new defined contribution plan tool introduced by Aon Hewitt this year could enable companies to compare fees before committing to new managers, while offering a selling platform that benefits investment-only DC firms.
Consultants, however, are uncertain whether the platform offers anything new or different.
Aon Hewitt is scheduled to announce its DC Nexus platform for defined contribution plans on Oct. 28. The platform is designed to provide the record keeper's clients, and their investment consultants, with a database of money managers' investment offerings and a dashboard showing relevant information, such as performance, fees and benchmarks. The goal is to streamline manager searches, monitoring and replacements. All participating managers are required to disclose fees.
The platform has data and information available from other sources, but is in one place with DC Nexus.
“There was a need in the marketplace for plan sponsors to get more transparency and consistency,” said Winfield Evens, a partner and director of outsourcing investment strategy at Aon Hewitt, Lincolnshire, Ill.
All money managers with at least $200 million in assets under management can sign up for free, but have to pay Aon Hewitt a distribution fee of three basis points annually for active strategies and 0.5 basis points for passive ones if they gain a new allocation through DC Nexus.
Aon Hewitt partnered with eVestment LLC, Marietta, Ga., to provide plan executives with information on all institutional fund offerings, including separate accounts and collective investment trusts, in addition to mutual funds; Aon pays eVestment a licensing fee; managers complete a short questionnaire on eVestment.
When DC plans search for a manager to run $50 million or more, their executives or consultants can use an auction option on the platform that allows for three rounds of bidding with finalist firms — typically three to five managers. Finalists submit blind bids in the first round and later are able to see the fee structure proposals of their competitors.
“It sounds a little different, but not completely unwound from a revenue-sharing arrangement,” said Ross Bremen, a partner with Cambridge, Mass.-based investment consulting firm NEPC LLC, who was not familiar with the product, “The part that could be new is the competition at the end,” where managers bid competitively on fee structures, as well as the use of eVestment, rather than Lipper Inc. or Morningstar Inc.
Aon Hewitt has more than 100 record-keeping clients with an average plan size of $2.5 billion; all are expected to be connected to the platform by the end of the year.
Mr. Evens said the auction process could help plans to get the best fees. The auction differs from a typical RFP or search, in which a board will interview finalists, select a manager and then negotiate. In that scenario, it is more difficult to ask a manager for concessions after the plan already expressed its intent to hire them, Mr. Evens said on the DCNexus platform, the finalist managers compete on fees before any firm is selected.
No accounts have been awarded through the DCNexus platform yet and Mr. Evens does not expect any until next year. He added the distribution fee of three basis points is in addition to typical revenue-sharing agreements with record keepers, but it is “eminently digestible” for managers.