Growth in target date funds is expected to increase 21% between the end of 2011 and 2016, according to a study conducted by BrightScope with Fuse Research Network. The study is part of a series of research reports examining the DC market.
Market share in DC plans should increase from 76% in 2011 to 80% in 2016, the study projects. Target date funds are expected to dominate over target risk funds.
Though many advisors are concerned about the one-size-fits-all aspects of TDFs, it’s their simplicity that makes them so attractive. Unlike risk-based funds, nothing is needed from the participant. Risk-based funds require action by the participant — with their risk tolerance sometimes based on their emotions, not their needs. Many experienced advisors are moving to glide paths where they have the ability to select the underlying funds using a date- or risk-based allocation from a third party. But all or most advisors use TDFs some of the time — and some advisors use them all of the time.
Collective trusts, which are cheaper than mutual funds, are expected to grow as well, the study reports — though their impact will be greater with larger plans.
