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TDF Trends and Best Practices

Tips on how best to serve clients with target-date funds were the focus of a March 23 session at the 2015 NAPA 401(k) Summit.


PIMCO Executive Vice President and National Retirement Sales Manager Sean S. Murray, SageView Advisory Group Senior Investment Advisor B. Todd Stewart, and Pensionmark Retirement Group President and CEO Troy Hammond offered their insights in a panel discussion. 


An understanding of client and plan demographics and an effort to match that with investment options is key, panel members indicated. For instance, Murray pointed out that matching qualified default investment alternatives (QDIAs) to demographic data benefits both advisors and participants. And doing so will have multiple benefits, he said, adding that by doing such analysis they can protect themselves and have a “dramatic impact on net income.” Hammond agreed, noting that they should “go beyond just providing analysis and understand the demographics of the client.” 


And how to better understand plan demographics? Murray suggested that an advisor ask the following questions: 



  • what role does the 401(k) play in the plan?

  • how quickly do participants take distributions out?

  • what is the current mean/median savings rate for plan participants?


Glide path is another key consideration, which Stewart numbered among the drivers of TDF performance. Murray, too, stressed its importance. In fact, he said his firm considers it so important that it developed an analytical tool for glide path analysis. 


Behavioral finance also affects saving and TDFs, Hammond emphasized. “The world has really changed — a lot of that is because of behavioral finance changes,” he remarked, identifying auto enrollment as one of them. 


And paying special attention to participants’ needs is an important way to serve them, they argued. “It’s important to have a holistic discussion with clients about retirement readiness — you want to make sure participants are on the road to that,” said Stewart. 


In a similar vein, Hammond said that rather than applying a uniform glide path, his firm seeks to develop customized solutions to participants’ problems. But at the same time, he — as well as Murray — said that cost is an issue in developing individualized portfolio management. In addition, plan sponsors are “starting to gravitate toward collective funds.” 


So what are best practices overall regarding TDFs? Stewart identified the following as drivers of TDF performance: 



  • strategic glide path;

  • strategic asset class and tactical asset class allocation decisions; and

  • underlying funds selection/security selections.


Murray offered ideas on best practices as well, suggesting that advisors profile the plan, review the TDF and document what they did and why they made a specific choice.

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