The Defined Contribution Conundrum

Automated Approaches to Unlocking the Potential of the 401(k) Retail Investments Market
by William Trout, July 13, 2015
Industry Trends
North America


Over the years, the 401(k) has displaced the corporate pension as the cornerstone for US retirement savings and today houses more assets than all other forms of qualified plans combined. At the same time, the 401(k) business has remained a backwater within the retail investments universe, lagging the broader retail brokerage industry in terms of cost, transparency, and overall user experience.

In the report The Defined Contribution Conundrum: Automated Approaches to Unlocking the Potential of the 401(k) Retail Investments Market, Celent describes how a trifecta of regulatory, economic, and demographic forces is reshaping the 401(k) business and opening the door to new market entrants.

Low cost, direct-to-consumer services such as Blooom represent an attractive alternative to established advice providers, with their opaque revenue models and embedded conflicts of interest. These providers will be increasingly vulnerable as disclosure and other regulatory requirements make visible the true costs of their services to participants.

Looking forward, it is the freedom from the operational requirements built into the 401(k) business (such as connectivity to plan providers and sponsors) that will enable creative responses to the evolving benefits landscape.

“A more open marketplace will allow participants to mix and match provider services and spur the creation of third party platforms that bill participants directly,” says William Trout, a senior analyst with Celent’s Wealth Management practice and author of the report. “Plan providers, sponsors, and advisors need to prepare for a regulatory Big Bang that could undercut long-held market assumptions.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary



Key Research Questions




Underlying Trends








Ecosystem and Actors



The Plan Sponsor



Target Date Funds



The Participant



Managed Account Providers


Looking Ahead


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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