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Investing November 16, 2016
More DC Plan Advisers Recommending Custom TDFs
However, there are considerations about the peripheral risks of offering a custom fund—as a growing handful of DC plan sponsors have already been sued over the performance of customized funds.
Reported by John Manganaro
Defined contribution (DC) specialist financial advisers managing at least $50 million in DC assets show an increasing inclination towards use of custom target-date funds (TDFs), according to a new analysis published by Cogent Reports.
The analysis shows roughly 15% of advisers in this market segment are recommending some type of customized TDF product for at least some clients. While 38% in this segment still recommend proprietary fund offerings from the plan provider and 46% recommend TDFs provided by external third-party managers, Cogent Reports suggests this is a clear sign of market evolution toward greater use of customization.
Looking across all DC advisory market segments, proprietary TDF offerings established by the plan provider are recommended by 48% of advisers, while TDFs offered by an external asset manager are recommended by 42% of advisers. Much of the remainder, or about 8%, commonly recommends customized TDFs.
Important to note, with or without customization, DC plan sponsor clients’ and advisers’ consideration of target-date fund providers remains largely based on fees and long-term performance. There are also considerations about the peripheral risks of offering a custom fund—as a growing handful of plan sponsors have already been sued over the performance of customized funds.
Additional data and analysis is available here.