Target date funds continue to proliferate – and though a mere handful of firms dominate that space, the retirement assets of an entire generation seem headed in that direction. This week, NAPA-Net readers weighed in on how/if their recommendations have changed.
We were first of all curious as to how many target date fund families were on readers’ “short list” of recommendations. Roughly one in four (24%) had three on their list, while nearly as many (22%) said they had four on that recommendation “roster.” One in ten actually said they had more than five.
That said, 18% cited five on their list, with the remaining quarter split evenly between (just) one and two.
Has that changed during the past two years? Mostly not. More than two-thirds (70%) say it hasn’t, while 13% say it has. For the rest, well, they said the number hasn’t, but the TDF family options have.
‘To’ or ‘Through’?
On what is perhaps a fundamental glidepath question, funds focused on going “through” the target date enjoyed a slight preference compared with readers who favored those with a “to” target date focus. Just over 4 in 10 (41%) indicated that, while it depended on the client, they mostly recommended “through” options, while about a third (32%) also said it depended on the client, but mostly recommended “to” options. As one reader explained, “We usually start with a demographic review and look at other benefits such as DB or post-retirement health coverage before deciding.”
The remaining 27% split – two-thirds opting for “through” and the other third (of the 27%) going with “to.” As one reader noted, “Most participants roll their money out of the plan when they retire so ‘to’ makes the most sense. If we see a lot of participants with a particular company leaving their assets in the plan post retirement, then we would use ‘through.’”
As for whether that focus represented a shift in emphasis, more than three-quarters (77%) said it hadn’t changed in the past two years, and just 5% said it did. Roughly 10% each said it either had “for new clients only” or had “for some clients.”
Plan Sponsor Perspectives
Those differences notwithstanding, asked if their plan sponsor clients understood/appreciated the difference between the “to” and “through” approach, about two-thirds of this week’s respondents indicated that “some do,” while nearly one in five (18%) said simply “yes,” and the rest split between “no” (as in they don’t understand/appreciate), and “most do.”
“We try to educate the clients about what we are choosing and why to document their prudence,” explained one reader. “Some take it very seriously, some trust us completely and therefore depend on our advice more than what we try to teach them.”
“Now that there's more research on the behavior around participants leaving/staying in the plan, they do appreciate the discussion,” commented another.
There’s been a lot of talk lately about the growing emphasis on passive strategies, and so we asked readers if that had (yet) led to their emphasis on a passive focus in target date funds. The results, as you might expect, were mixed – but mostly that was a trend that hadn’t taken hold. A plurality (29%) said it hadn’t, “but the increased focus on fees is having that effect,” while another 24% said “not really,” while 14% responded simply “no.” That said, the rest split between “yes” and “yes, but only as it contributes to expense savings.”
Asked if that shift had changed in the past two years:
48% - No
43% - For some clients
9% - Yes
There were, of course, some additional reader comments. Here’s a sample:
- “Finding a good fit is not easy and usually boils down to a ‘best guess,’ but it is based on data believed to be reputable. When there are many employees we are finding that the best fit solution often comes with multiple glide paths that address age and risk tolerance.”
- “In addition to target date funds, we have used managed account programs. While we have our own biases and philosophy, we recognize that some clients prefer custom solutions.”
- “Way too many TDF analyzers out there from our fund partners! Most that are built using criteria to guide you toward that particular fund family.”
- “Would love to see the research that shows whether/if these glidepaths are fundamentally different in performance/outcome after 10 years, as opposed to a balanced fund.”
Thanks to everyone who participated in this week’s NAPA-Net Reader Poll!