TDFs Offer Experienced Advisors Opportunity to Show Value

When TDFs first came out, some advisors saw them as a threat — especially when the record keeper only offered one option, usually their own. For advisors who saw their value primarily in the selection and monitoring of investments, the use of TDFs seemed to diminish that value. But with the growing complexity of TDFs, more choice and the increasing reliance on TDFs by more plans and participants, the role of an advisor in selecting, monitoring and properly using TDFs has perhaps become their key role — more important, some would argue, than the selection and monitoring of the record keeper.

There’s no doubt that more and more plans are using TDFs and that an increasing percentage of assets are flowing into a vehicle where professionals are managing it to the point where some people think it might be the only option that many plan participants use. But there’s a growing awareness about the complexity and the growing number of TDF options, which is where an advisor can add value. 

Experienced advisors can plan a key role selecting and monitoring a plan’s TDF based on the needs and demographics of the participants, including whether the fund is designed to go to or through retirement, active vs. passive (although some argue there is no such thing as a passive TDF), the risk that the fund is taking, proprietary vs. open and, of course, the fees.

Just as brokers morphed into fiduciary advisors in the DC market, advisors need to morph into stewards focused — and perhaps judged — on outcomes. With the growth of the auto-plan design, which some see as another threat to advisors, the role of the steward in the selection and monitoring of TDFs becomes that much more important, especially as we move into more customized versions of managed investments.