Defined-contribution plan assets will increase to $5.5 trillion by 2015, despite a projected $2 trillion in outflows as boomer retirement accelerates, according to a report by McKinsey in New York.
Automatic contributions are helping fuel that growth. McKinsey said target funds, where many automatic contributions land if the employee hasn’t made specific selections, will account for 60% of defined-contribution assets and revenues, or $1.7 trillion. These funds are likely to grow at the expense of active U.S. equity and stable value funds.
To capture the biggest chunk of the defined-contribution market, advisors should focus on client demographics and market segments most likely to benefit from automatic contributions. Celine Dufetel, a partner in the consulting firm’s retirement practice and author of the report, said that this would most likely be a paternalistic, white-collar company that would embrace auto enrollment and tends to have higher compensated workforce.
“It could be one of many industries, but you’re probably looking at professional services,” she said. “Smaller and mid-sized segments are the fastest growing, and the increasing complexity of DC plans and fiduciary duty means employers are looking for help, which is good news for the registered investment advisor community.”