More white-label and unitized investment options in defined contribution plans are boosting the business of transition management firms hurt by the decline in defined benefit business.
“Ten years ago, about one in 10 transitions were in DC; now it's more like 40% to 60% of all transitions. DC has become a material part of the transition management business,” said Paul Sachs, Philadelphia-based principal at Mercer Sentinel Group, the asset-servicing consulting business of Mercer LLC.
“It's been an evolutionary change, but also a noticeable one,” said Mr. Sachs.
Some companies — including State Street Corp. through its State Street Global Markets unit — have had dedicated teams focusing on defined contribution plan transitions for years. But other firms — like Penserra Securities LLC — are newer to the DC market. All are targeting both when a plan switches to white-label funds from mutual fund options and after the fact, when manager changes within each white-label option require a transition.
At Fidelity Capital Markets, the institutional trading unit of Fidelity Investments, the transition management business has seen 50% year-over-year growth in DC assets in the last three years, said Kevin Byrne, New York-based vice president, head of transition management.
Ben Jenkins, senior vice president and global head of transition management, Northern Trust Corp., Chicago, said DC transitions “have tended to be very large, multibillion-dollar efforts, but there is a new trend over the past 18 months toward more residual or follow-up transitions. Maybe three months later, let's say, the plan may need to rebalance those options.”