Industry Insight from Fred Barstein
Boston Research Group to Re-Launch the DC Data Hub 

Omnibus trading is what makes 401(k) plans work.  Without it, brokerage accounts would be used and the trading fees would overwhelm each investor/participant who puts minute amounts of money into individual funds each payroll.  But that same type of trading that enables tens of millions of individual investors to buy a small piece of Wall Street with each paycheck is crippling the supply of information to the growing number of Defined Contribution Investment Only (DCIO) firms, who are becoming essential supporters of the practices of DC focused advisors.

As record keepers opened up their platforms three to five years ago, DCIO firms flooded the market trying to reach the new gatekeepers, DC advisors.  Because these DCIO firms could not afford to duplicate their massive wholesaler distribution force, they rely on retail wholesalers to support and generate interest in their funds within 401(k) plans.  But because of omnibus trading, DCIO firms only get one buying order from the record keepers, especially insurance platforms, and do not know the location of the plan or the identity of the advisor.  As a result, DCIO firms cannot properly incent and compensate the retail wholesalers or recognize the advisors supporting their funds.  Broker dealers do not know how much retirement business is being generated in their system which limits support from their parent.  They do not know if commissions are suitable and they cannot notify plans about a problem fund when issues arise.  Record keepers are barraged with requests for data from multiple DCIO and broker dealer partners which they would like to accommodate, but struggle with limited IT resources.  Everyone needs better and timely intel on fund flow by asset class, fund, commission structure, type of advisor, and even wholesaler efficiency to manage their resources and plan for the future.

The entire industry will be facing even bigger issues under 408(b)(2) fee disclosure rules, and in an atmosphere and around an issue where the 401(k) market has not fared well, the Data Hub will show that the industry can respond in a meaningful, thoughtful manner. 

The Boston Research Group led by trusted industry veteran Warren Cormier stepped into the void two years ago with a solution called the “DC Data Hub”, which allowed record keepers to upload their data in which ever format they had.  The Data Hub would translate the data from different “languages” into a uniform format so that DCIO firms and broker dealers could download data related to their respective organizations only.  October 2008 brought chaos to the markets and halted development, but not interest.  On September 8, 2010 in NYC, the Boston Research Group will be conducting a meeting to re-launch the Data Hub as a not-for-profit industry owned and run organization, ensuring reasonable pricing and security of data like the NSCC.

Why should advisors care?  DCIO firms are becoming the main supporters of advisors supplying them with valuable prospecting, due diligence, market intel, benchmarking, and training support.  Without timely knowledge of how much each advisor is flowing, it is difficult to properly recognize these advisors.  Also as the industry matures and needs to become more efficient, better market intel that only the Data Hub could supply is required.  If the industry is serious about solving this problem, we recommend that they support the Boston Research Group’s Data Hub effort and get more information about the NYC meeting on September 8th by emailing:

wcormier@bostonresearch.com.

Return to Newsletter