The Twilight of Active Management?

Topics in 401 (k) Distribution: Fourth in a Series

Unsettled though advisors may be about what their broker/dealers will require of them under the fiduciary rule, they are nonetheless utterly clear-headed about where their investment recommendations are going.

More than half (52%) expect to begin recommending passively-managed funds or to increase the number of such funds they recommend to plan sponsors as a result of the DOL; four in ten expect to replace actively-managed funds with passively-managed funds. Netting the (extensive) overlap in these responses, almost six advisor in ten (59%) are looking to increase the availability of passively-managed funds in their plans.

The rush to passive is conspicuously higher among Medium advisors (20% to <60% of their income from 401(k), 68%), advisors writing larger plans (especially $10M+, 71%) and wirehouse and IBD advisors (74% and 70% respectively).

Meanwhile, barely one-third of advisors (32%) are expecting to increase their use of actively-managed funds.


Increasing use of passive funds is the biggest impact of the fiduciary rule so far


Are advisors expecting to use less of either active or passive funds? Well yes. About one advisor in five (19%) expects to rely less on passive funds in the future but an overwhelming 47% expects to rely less on actively-managed funds.

The rush to passive is well under way.

Almost as prominent is the proportion of advisors (48%) expecting to reduce the number of funds they recommend that have revenue sharing, especially Medium and Heavy (60%+ of income from 401(k)) advisors, advisors based in wirehouses and advisors writing plans of $3M or more.

And managed accounts look to figure more prominently as the fiduciary rule takes hold with almost half (49%) of advisors expecting to recommend this investment structure more frequently. Advisors most focused on the growth of managed accounts include Medium and wirehouse-based advisors and those writing plans of $25M+.

In a nutshell: less discretion, more automation in emerging fund line-ups.

About the Research

Retirement Services Intermediaries studies were launched in 2000 by Brightwork Partners LLC; Brightwork was acquired by NMG Consulting in 2017. Findings are based on selected RSI waves carried out between 2005 and 2017. These studies are conducted by telephone, typically among a representative cross-section of 600 or more advisors deriving income from 401(k) plans. RSI 12 is scheduled for delivery in mid-2018.

For more information

Merl W. Baker, 203.487.2000;

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