Vanguard jumped past Fidelity to become the largest manager of U.S. defined contribution assets, a post Fidelity had held since 1998, Pensions & Investments' annual survey of money managers shows.
Vanguard's defined contribution assets surged almost 28% in 2013, compared to a $16.9% gain for Fidelity.
Vanguard's DC assets doubled since 2009; Fidelity's rose 35.4%, according to P&I data.
P&I has been tracking money managers' defined contribution assets since 1997, when TIAA-CREF, New York, was the leader. A year later, Fidelity began its winning streak. The P&I survey counts U.S. institutional tax-exempt DC assets, excluding assets held in custody, in company stock or under record-keeping contracts.
Defined-contribution consultants said Vanguard's DC AUM growth is due primarily to industry trends of plans offering more index funds and target-date funds — two strong points for Vanguard
“Vanguard has done a fantastic job of establishing its brand as the "vanguard' of low-cost indexing,” said Jacob O'Shaughnessy, adviser at Arnerich Massena Inc., Portland, Ore. “Vanguard has done a better job (than other fund companies) of leveraging its products and brand across many record-keeping platforms.”
Mr. O'Shaughnessy said Vanguard's reputation plays into several trends, including the desire by DC plan executives to reduce fees, thanks in part to federal fee disclosure regulations that took effect in mid-2012. He also cited plan officials' concerns about fee-related lawsuits. “From a fiduciary standpoint, there is a perceived benefit to offering index funds,” he said. “A lot of litigation is around underperforming (actively managed) funds.”
Consultant Martha Tejera said in her experience, if plan executives “have a preconceived notion about focusing on fees and passive investing, Vanguard has a stronger reputation” than other service providers.
But for those executives concentrating “on more comprehensive services and a broader approach to investments, Fidelity has the stronger reputation,” said Ms. Tejera, project leader at Tejera & Associates LLC, Seattle, which provides investment and management consulting to DC plans.
“Passive investing is less expensive, and passive offers less fiduciary risk,” she added. “Passive investing is Vanguard's sandbox.”