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Rating:Cross-Selling Between DB and DC Not Rated 3.0 Email Routing List Email & Route  Print Print
Tuesday, June 1, 1999

Cross-Selling Between DB and DC

Reported by Tony Pennino

The following article is based on Institute for International Research's one day forum, "Using Alternative Distribution Channels to Sell Investment Services".

The defined contribution marketplace has reached a point of maturity. At least that is the conclusion many have reached inside the industry. So, how do you find new clients for your products? If you are an investment manager, you might try cross-selling between defined benefit and defined contribution plans. This is the advice from Kristin Pawlak, associate research director at Eager Manager Advisory Services.

Pawlak explored the strengths and weaknesses of investment managers on the defined benefit side as well as those on the defined contribution side.
Insights from the DB Side:
1. 43% of sponsors will use managers for more than one role.
2. Half of managers' new assets came from clients.
3. Large plans are as likely to reduce the number of managers as they are to increase.
4. Key drivers: Cost savings and convenience.
5. Key question: Will these "drivers" affect changes in DC investment programs?
She concluded that there is an opportunity for cross-selling in both markets, particularly based on a sponsor's desire to have only one contact for investment-only services.

Pawlak paid especial attention to a new trend that is developing in the 401(k) world. Namely, there is a movement toward what she termed "full-service with investment only" plans. In other words, bundled plans with some outside investment options.

In cross-selling, the researcher emphasized that marketing should focus on the officials in finance and treasury including those who hold top and mid-level positions. According to her findings, the finance and/or treasury arm of a potential client are involved in the selection of new investment options 84% of the time. She cautioned her audience though not to ignore the human resources office. Human resources, personnel, and/or benefits officials were involved in the selection of funds 47% of the time.

Nonetheless, where both offices are involved, treasury administrators are the more influential 76% of the time while human resources officers were more influential 19% of the time.

Pawlak noted that there are certain attributes that sponsors require of their asset managers on the defined benefit side are the same as defined contribution side. These qualities include: good consistent performance, investment approach, fees, and organizational stability.

Sponsors expect that the asset managers they hire to have specific knowledge of defined contribution plans, particularly in regard to product structure and compliance issues. They also want investment managers who have experience working with defined contribution plans -- which should not be difficult to find because according to Eager statistics 79% of investment-only managers service that market -- and have experience with those plans. Pawlak added that a name brand was also a key to success.

She added that a sales professional will need to communicate well both verbally and on paper with potential clients. The sales person will also need to understand the specifics of portfolio construction and the reasoning behind it.

Important
Investment-only managers are used most frequently for index and other specialty products, according to Eager. These items include:
  • indexed equity
  • stable value/GICs
  • growth equity
  • small cap equity
  • balanced
  • international equity

Also, according to Eager, the future looks bright for:
  • small cap equity
  • lifestyle funds


Pawlak believes that investment managers who specialize in either area have room to grow. Investment managers with experience in DB plans need to demonstrate that they understand 401(k)'s and servicing participants. Investment managers on the DC side need to demonstrate that they are strong in investment servicing.

She related that many firms that work specifically with DB plans are marketing their products to their clients' DC plans even though they do not have a dedicated sales force. 74% are doing so while 26% are not.

The researcher contended that no one firm is the market leader in cross selling. But given that sponsors generally only want one contact person for investments, she advised that vendors who wish to market to both kinds of plans must do the following:
  • ensure that DC contacts know investment issues,
  • ensure that DB contacts know plan/participant issues,
  • and work to obtaining a single servicing contract if one manager is to be used for both plans.
A note on how Eager compiled its statistics: 1,424 surveys were mailed to sponsors (principally of DC plans), 159 surveys were returned, interviews were conducted with a subset, and 30 investment managers were also queried. 

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