DC industry will have to adapt to new technologies
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
      Mellody Hobson, president of Ariel Investments, speaks during an interview in Hong Kong on Sept. 1, 2017
      Ariel launches effort to boost minority business owners
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • OMERS CEO Blake Hutcheson
      OMERS records worst loss since 2008 on bad COVID-19 bets
      Mitchells & Butlers turns off tap on pension contributions until April
      Jerome Powell, chairman of the Federal Reserve, adjusts his glasses during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington on Sept 24, 2020.
      Powell says Fed will hold steady during economic recovery
      Institutional investors mobilize for equitable global COVID-19 response
    • Database’s debut focuses on public-sector DC plans
      DC plan sponsors differ on need for annuities – survey
      Biden’s retirement idea getting the cold shoulder
      Few participants tapped savings to weather pandemic – Vanguard
    • Justin Trudeau, Canada's prime minister, smiles during a virtual joint news conference with U.S. President Joe Biden in Ottawa on Feb. 23, 2021
      U.S. joins forces with Canada on climate change
      Signage is displayed at Harvard University Health Services in Cambridge, Mass., on April 20, 2020
      Harvard endowment’s fossil-fuel investments drop to 2% of assets
      After strong 2020, ESG investments forecast to grow more – Moody's
      Emissions rise from the coal fired power plant in South Carolina
      U.K. managers seen pressuring firms on diversity, climate change
    • Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
      Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • New Hampshire Retirement discloses $50 million commitment to direct lending fund
      GPIF hires CBRE Global to manage core global real estate
      Malaysia's EPF hires 3 for Shariah-compliant private equity
      Margaret Anadu
      GSAM chooses global head of sustainability and impact
    • Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Signage for AMP Ltd. adorns the top of a building in the Docklands area of Melbourne on May 10, 2018
      Ares, AMP eye joint venture
      Thasunda Brown Duckett
      TIAA appoints Thasunda Duckett as president and CEO
      Brightwood Capital adds senior investment professional
    • A monitor displays Alexander & Baldwin Inc. signage on the floor of the New York Stock Exchange on Nov. 13, 2017
      Alexander & Baldwin to terminate 2 pension plans
      Mark Machin, CEO of Canada Pension Plan Investment Board
      CPPIB head resigns following COVID-19 vaccination trip
      Doug Heron
      Lothian Pension Fund to lose CEO this year
      Truist Financial puts $387 million in pension plan in Q1
    • Mark Machin, CEO of Canada Pension Plan Investment Board
      CPPIB head resigns following COVID-19 vaccination trip
      Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Doug Heron
      Lothian Pension Fund to lose CEO this year
      Correction: PGIM Real Estate
    • Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
      Kohlberg closes latest private equity fund at $3.4 billion
    • Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • New Hampshire Retirement discloses $50 million commitment to direct lending fund
      GPIF hires CBRE Global to manage core global real estate
      A Pacific Gas & Electric Corp. hard hat at a job site in San Francisco on Feb. 24, 2021
      PG&E to power up $327 million for pension plan
      Malaysia's EPF hires 3 for Shariah-compliant private equity
    • New Hampshire Retirement discloses $50 million commitment to direct lending fund
      GPIF hires CBRE Global to manage core global real estate
      A Pacific Gas & Electric Corp. hard hat at a job site in San Francisco on Feb. 24, 2021
      PG&E to power up $327 million for pension plan
      Malaysia's EPF hires 3 for Shariah-compliant private equity
    • Emerging Market Equity Manager Services
      Securitized Credit Manager Search
      Private Placements Asset Manager Search
      Actuarial Consultant Search
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Shifting DC Times – Winter 2021
      Bond ETFs show maturity during Covid market mayhem
      Pension Consolidation: Optimizing Scale and Maximizing Efficiency
      China is embarking on a new stage of growth
    • David Blitzstein
      Commentary: Without a national retirement policy, Americans face a future of pension crises
      Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
      Bill Peressini
      Commentary: Carbon’s elemental role in the future of impact investing
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Domestic High-Yield Fixed Income, 4th Quarter 2020
      Top Performing Managers of Domestic Long-Duration Fixed Income, 4th Quarter 2020
      Top Performing Managers of Emerging Markets Equity, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Special report: Technology in DC
October 15, 2018 01:00 AM

DC industry will have to adapt to new technologies

To survive, industry must embrace evolving pillars of technology

Rick Baert
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Michael A. Marcotte
    Northern Trust's Sabrina Bailey thinks artificial intelligence and digital advice will have a direct impact on the behavior of plan participants.

    Technology's application in defined contribution plans is really as simple as A, B, C and D.

    That's according to a variety of DC and tech sources who say the application of artificial intelligence, blockchain, cloud-based systems and digital delivery will continue to disrupt how plan sponsors, record keepers and participants interact.

    "Five years ahead, technology in general is the biggest threat to the defined contribution industry as it stands now," said Michael Srdanovic, senior vice president at Northern Trust Corp., Chicago. "Everyone in the industry will need to adapt."

    Added Sabrina Bailey, Chicago-based director, digital investment advice, at Northern Trust Asset Management: "If we look into the future, AI and digital advice will have a direct impact on participants vs. blockchain and cloud-based technology, which are more on the provider side. Those allow for AI and digital use."

    The driving force in applying technology to defined contribution is gaining efficiencies, as all actors in the DC world are increasingly pressed for time, said Scott Blandford, executive vice president, chief digital officer, at TIAA-CREF, New York.

    "Time is thin. This is (the) attention economy, with time being so scarce," Mr. Blandford said. "That's the case for participants, but also for plan sponsors. There are two things we're focusing on: getting it right for participants and getting it right for the plan. Plan sponsors want to increase engagement and time readiness. We used to leave the plan sponsor to sort out all this data themselves; now we know plan sponsors have a super set of goals, so we mine data for them to know what to pay attention to."

    A focus on delivery

    The four different varieties of technology that's applied to defined contribution infrastructure all relate to delivery — bringing a variety of services to the different parties in DC, whether the plan sponsor, administrator or the participant, said Tim Slavin, senior vice president, retirement, Broadridge Financial Solutions Inc., Lake Success, N.Y. "We see four requirement buckets that are applicable in the defined contribution delivery chain," Mr. Slavin said. They are:



    • Personalization, using technology to make communication with participants more targeted, including their own particular investment choices, rebalancing and age-relative changes like reducing investment risks as they grow older.

    • Technology-enhancing tasks and duties, ranging from automated advice for participants to automatic suggestions to plan sponsors to change some investment options based on performance.

    • Mobility, from sponsors to providers to participants, to allow them to see activity and react in real time.

    • Cybersecurity, which Mr. Slavin said is "an obvious key component in everything the industry does. All parties, especially plan sponsors and participants, must feel their data is secure."

    And those requirements aren't just for larger DC plan sponsors, Ms. Bailey said. They're for plans of all asset and participant sizes — and technology is the great equalizer among them.

    "For the first time in the industry, smaller plans, those with under $25 million in assets, can take advantage of technology to provide the same kind of tech-driven services that large plans with scale can do," Ms. Bailey said. "Newer providers in the market are setting up systems, offering everything from cloud-based to artificial intelligence to digital service … Smaller plans now can play in the same ballpark with the same services as the bigger plans. That's a reversal of how innovation has typically happened in the DC space. Traditionally, advances have moved from the larger end of the DC market and moved down market."

    Providing an edge

    Technological advances also benefit record keepers at a time when the business is being squeezed by smaller margins and greater competition, said Robyn Credico, Alexandria, Va.-based defined contribution practice leader, North America, at Willis Towers Watson PLC.

    "With their business model, record keepers' margins are so thin, using technology is the only way for them to make money," Ms. Credico said. "Ninety percent of all transactions go through record keepers' websites. When it comes to artificial intelligence, and especially just in defined contribution where we talk about financial well-being, a lot of providers use AI to try and simplify the whole process. (Record keepers) use whatever they know about the participant, like their investment preferences, to guide them through information on financial wellness. AI lets them guess how and what to talk to participants about, vs. giving them a 20-page questionnaire to fill out. That makes it much more user-friendly."

    Mr. Blandford said TIAA applies "machine intelligence" — a combination of artificial intelligence and machine learning — to create a report card for plan sponsors on different dimensions of a defined contribution plan and to go deep into data to get specifics on where participants are investing.

    "With the combination of AI and machine learning and natural language, a machine learns what the intent of a participant's question is, using common terms and also translating colloquialisms, and retains the context for future questions," Mr. Blandford said. "We look at this as a conversational user experience. The strategy is high tech and high touch."

    Convenience is one way of looking at what is pushing advanced technology, but Northern Trust's Ms. Bailey said it's also being driven by a younger workforce.

    "The generation entering the workforce has known nothing other than the smartphone era," Ms. Bailey said. "They know what they want and when they want it, and how to get it. Other financial services have done more to meet that demand, but the defined contribution industry has been slow in doing so. But that's what people are coming to expect, so the industry has to meet that demand."

    Jana Steele, senior vice president, defined contribution consultant, Callan LLC, San Francisco, said the application of AI to participant behavior "goes back to digital delivery. The initial deployment of AI is in reaching out to participants and for plan sponsors to use analytics. That's the first bubble of AI. Next is basic administration of the plan, so vendors can plan for call center spikes and other traffic issues at certain times, like hardship filing spikes each August" when many participants withdraw assets to pay for children's college tuition."That allows record keepers and plan sponsors to plan for that."

    Added Benjamin Taylor, senior vice president, defined contribution consultant at Callan, San Francisco: "A lot of core cost management has an ebb and flow that can be managed with machine learning. Their analogs use a different tool. Behavioral economics can determine methods of thinking, and AI can do the same thing in terms of identifying patterns of participant behavior."

    Digital delivery is "a bit of a mixed bag," Mr. Taylor said. "It can help plan sponsors and record keepers save a lot of money and can link to things like open rates, different patterns of engagement, than they can with paper communications. You'll also see this used in Amazon and other retail websites to get the best price. It tests each method of engagement with responses in digital delivery of things like education materials."

    While AI and digital delivery directly impact plan participants, the application of blockchain and cloud-based technology has a more indirect but no less important impact on DC plan efficiencies, said Broadridge's Mr. Slavin. But blockchain's potential, for one, has not yet been tested to the extent that it has been in settlements.

    "Record keeping is a complicated process in our industry," Mr. Slavin said. "Blockchain has the potential to dramatically simplify very complicated tasks that can improve margins."

    All eyes on blockchain

    Mr. Taylor said the DC industry in general "is taking a hard look at blockchain. Large entities are seeing blockchain as a long-term solution to standardizing data transfer. There's a lot of data cleanup; blockchain would create an industry standard for data."?However, Mr. Taylor added, blockchain use overall is in its early days. "I'm not in a position to say whether that technology is applicable because of its early stage, but it's the farthest behind other technological changes," Mr. Taylor said. "It won't hit prime time in the very near future."

    What has advanced, Mr. Slavin said, is the use of cloud-based technology, particularly in DC administration.

    "All record keeping, including trading and custody, is in the cloud now," he said. "The security and speed of development the cloud offers are critical for the industry. It took a while to get here but the industry is fully there, in my view."

    But that's not the case for plan sponsors, Callan's Ms. Steele said. "From a plan sponsor perspective, there's not much of a move to transfer human resources information to the cloud," Ms. Steele said. "It is more likely housed on mainframes and server-based systems. There's a bit of a lag there due to inertia and companies' inclination to keep that information secure. From a vendor's perspective, a few have moved capabilities on to the cloud. From a participant perspective, plan sponsors can take advantage of cloud-based systems if they're savvy enough with their record keepers. A number of record keepers will have a platform to upload data to plan sponsors, like account questions and identifying payroll records. The key is some level of encryption to ensure the data is secure."

    The protection of data is a challenge for plan sponsors in applying new technology, said Keith Overly, executive director of the $13.4 billion Ohio Public Employees Deferred Compensation Program, Columbus. "We have to look at ways to secure both the data and the assets of participants." Mr. Overly said.

    However, there are opportunities that technology will provide, particularly in helping participants, Mr. Overly said. "As a plan sponsor, we're trying to get participants to invest more and invest more wisely. That's the ultimate goal. You may want to improve plan design, but it's another thing to get participants to do what's best for them. We think technology can help."

    But those opportunities will have to be weighed against fiduciary responsibility, which will remain constant despite technological changes, said Matthew H. Hawes, partner, corporate benefits and executive compensation group, Morgan Lewis & Bockius LLP, Pittsburgh.

    "Fiduciaries will still be responsible for selection of a provider," Mr. Hawes said. "There may be additional challenges with evaluating future technology managers; we may see changes in that. But that won't change the responsibilities and the legal landscape for fiduciaries. Whether it's a computer program or (an) individual, you may not know the coding but you still have the fiduciary responsibility to know if that provider is reputable, if it's appropriate for the plan and if you can monitor it. That reputational element applies as much to a tech provider as it does to an individual manager."

    Related Articles
    Firms take steps to maintain data integrity, security
    Providers mining big data for look into participants
    Seeking an edge, more managers beef up websites to woo clients
    Commentary: 401(k) fixes needed right now
    U.K. employers open to flexible uses of retirement savings – survey
    Believers say AI could soften volatility, not amplify it
    Recommended for You
    Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    Sponsored Content: Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Shifting DC Times - Winter 2021
    Bond ETFs show maturity during Covid market mayhem
    Pension Consolidation: Optimizing Scale and Maximizing Efficiency
    China is embarking on a new stage of growth
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center