Skip to main content

You are here

Advertisement

Proprietary TDFs: Good, Bad or Just Right?

There’s a lot of discussion about the efficacy of TDFs that invest only in the fund complex’s investments. Many are predicting that it’s only a matter of time before they’re forced to open up to outside investments, just as record keepers were forced to offer non-proprietary funds more than a decade ago. But is this conventional wisdom true, or even sound?

When a TDF manager using only proprietary funds was asked at a recent DC conference how he could justify using only in-house investments, he answered simply, “Performance.” Many of the largest TDF providers use only proprietary funds — Fidelity, Vanguard, T Rowe, JP Morgan, American Century and American Funds, to name a few — and many of them are top performers. These investment professionals claim that they can manage costs and understand the underlying investment portfolios and strategies better with in-house funds.

Most investors in a fund don’t do as well as the fund itself because they buy and sell at the wrong time. Could open architecture TDFs fall into the same trap? Especially for retirement, shouldn’t investors be looking long term — giving their manager or fund complex the opportunity to ride out investment cycles rather than review their performance quarter to quarter?

What do you think? Will proprietary TDF managers be forced to open up? Do you have a bias against them and, if so, why? Will custom glide paths go mainstream?

Advertisement