Last year Russell announced their Adaptive Investing service, which they touted as an alternative to TDFs. The service can customize an asset allocation product for each participant in a DC plan based on readily available data from record keepers and HR systems. This week Russell announced that they are the lead investor in Next Capital, the technology behind Adaptive Investing. The move is a sign of Russell’s continuing support not only of the product, but also the development of technology that can aggregate other financial data of plan participants to create a holistic financial picture.
Adaptive Investing uses readily available data to determine how much risk a participant needs to take to accumulate sufficient assets, taking a page from liability-driven investing, which is popular with DB plans. For example, if a participant is on track or even ahead of his or her goal, less risk may be taken. The data used to determine the asset allocation includes:
- DB account, if applicable
- gender
- salary
- account balance
- deferral rate
In TDFs, it is assumed that everyone within a five-year period should take the same risk. Many firms are working on customizing asset allocation investments — some are mixing risk and target date allocations; others are using managed accounts. The key is providing the right investment to each individual without much involvement from them, which Russell’s product seems to accomplish. By adding financial data from outside the plan and the company, which Adaptive Investing is designed to do, the investment can be that much more refined.
Morningstar is going one step further, acquiring ByAllAccounts for their data aggregation capabilities, along with Hello Wallet, to provide investors with budgeting help.
Russell was recently sold by Northwestern Mutual to the London Stock Exchange, which seemed most interested in their indices.
