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Next Wave of RFPs: Target Date Funds

[REVISED APRIL 28 — SEE EDITOR'S NOTE BELOW]

During a discussion about what’s working for his practice, an advisor said that he is having great success with both clients and prospects by leading with a target-date fund (TDF) RFP before searching for a record keeper. Might that make sense for you, and if so, what are best practices?

Though the record keeping platform search is critical, consolidation has winnowed the number of suspect providers, and those that have survived are starting to appear very similar. It’s harder for these providers to clearly distinguish their services, because when one of them creates something that catches on with advisors and plan sponsors, they all seem to follow. But the number of TDFs on each platform is limited and only a few are currently offering custom funds or providing the ability of advisors to use the plan’s current fund lineup to populate a glide path model.

So starting with a TDF search may make sense. Once that search is completed, then the list of record keepers that offer that TDF is smaller. The key issue is whether the TDF is more important than the record keeping platform. Separating the two RFP processes is also a very sound fiduciary process, especially is a provider offers better pricing if their proprietary TDF is used.

There are many tools around to help advisors analyze TDFs, most from TDF providers themselves. While many of them are really good, does it make sense for the restaurant owner to also be the food critic?

Not all TDF tools analyze the underlying funds and holdings of the funds. The managing director and founder of Fiduciary Plan Tools advises that plan sponsors have to look beyond just pure performance. He raises an interesting and vexing fiduciary question overlooked by most TDF analytic tools: “If a plan removes a fund that is not performing, what happens if that fund is a significant part of the plan’s TDF?”

So it might make sense for advisors to start with a TDF RFP before they search for a new record keeper. That’s different than for plan sponsors, who should start with an advisor RFP.

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.

Editor’s Note: As originally published, the above post contained what the author purported to be a direct quotation from Richard Dunne, President and CEO of Bdellium, Inc. Subsequently, a review of a transcript of the source interview confirmed that the quotation attributed to Dunne was not accurate, nor did it in any way reflect the perspectives that he shared in the interview. We have therefore removed that quotation, and offer our apologies to Mr. Dunne for the misattribution.

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