Various Factors Spur Investment Menu Shifts – But One Still Stands Out

A recent survey indicates that while performance is a factor, it’s not the top factor motivating fund changes by plan sponsors. That’s not, however, the experience of NAPA Net readers.

While the Cogent Reports Retirement Planscape report notes that in instances where plan sponsors say they intend to drop or reduce the number of investment options provided by specific investment managers, the most common reason – for the second year in a row – was the desire to reduce fees/expenses, among respondents to this week’s NAPA Net reader poll, performance still rules the investment menu change “roost,” being the most cited of several factors among several and the single top cited criteria.

Asked to identify (all) the factor(s) involved in investment menu changes, poll respondents cited:

68% – performance
53% – fees
37% – active-to-passive shift
26% – asset class attributes no longer meet requirements
23% – style shifts
15% – manager changes
11% – negative media
9% – recordkeeper change
5% – moving to zero-revenue-sharing funds
3% – combination of the above

But, as noted above, asked to pick the one factor that has accounted for most of the shifts in the investment menus of the plans they work with in 2017, readers mentioned:

58% – performance
27% – fees
9% – active-to-passive shift
6% – asset class attributes no longer meet requirements

Changes in menu design, addition of passive investment options to the active managers, a more dynamic TDF, incorporating active and passive, and multiple managers were also mentioned.

As for the notion that larger plans/programs were motivated by different factors – well, respondents to this week’s poll (mostly) didn’t see it that way. About two-thirds (68%) said “no, not really,” although about 21% conceded that was sometimes the case. The remainder indicated that it seemed to be more a function of plan sponsor/commitment focus than plan size, per se. “The main difference from my experiences are that smaller plans may not have the resources to monitor their plans’ investments,” explained one.

Where a difference was noted, larger plans were seen as being more focused on two factors: fees and liability. “Most of my changes have been share class changes to reduce fees,” explained one reader who went on to note that “performance and consistency still rank very highly for most clients.”

As for other trending areas of investment menu change, one reader noted they were “streamlining menus and where present suggesting the removal of sector funds,” while another said they were “removing funds considered to be redundant (e.g. balanced funds, global funds), removing indexed options in less efficient asset classes (e.g. emerging markets, non-U.S., bond), and removing less-diversified options such as sector funds.”

Thanks to everyone who participated in this – and every week’s – NAPA Net reader poll!

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