Refining the Fund Lineup
Target-date funds have done a wonderful job of getting
participants’ portfolios diversified, but managed accounts, which are tailored
to an individual’s personal situation, can do an even better job, panelists
“Target-date funds (TDFs) have been a great benefit for
participants to diversify, as people have never understood asset allocation,”
said Tim McCabe, senior vice president and national sales director, retirement,
at Stadion Money Management. Since first being offered, TDFs now have “to” and
“through” retirement glidepaths, as well as emerging market and international
exposure—and these are welcome developments, McCabe said. However, because TDFs
are not transparent when it comes to their actual holdings, it is “hard to
evaluate their risks,” McCabe said.
“TDF investors have done well because of diversification and
the fact they tend to remain invested in the funds—but each TDF is completely
different,” agreed Ryan Mullen, senior managing director, national sales, for
MFS Fund Distributors, Inc.
Looking forward, retirement plan advisers should begin to
embrace managed accounts, the speakers said. “Moving from ‘do it yourself’ to
target-date funds, TDFs have been a wonderful first step” to getting
participants’ portfolios to become diversified “but they are built around the
average employee,” McCabe said. “People have different risks and savings patterns,
and managed accounts are specific to each participant’s holistic situation.
They actually personalize the investments and require the investment manager to
act as a fiduciary in the participant’s best interest. In addition, they invest
100% of the assets in the fund. While there is no substitute for an adviser
sitting down with a participant, that is just not scalable.”
In addition, managed accounts could potentially offer higher
returns in this low-return environment, Mullen said. “You need to ask yourself
what you are doing to drive additional alpha,” he said. “Lowering fees helps,
but it doesn’t drive alpha."
Furthermore, advisers need to ensure that people are saving
enough and should embrace automatic escalation, said Clint Barker, senior vice
president of product strategy and national accounts at Prudential Investments.
However, he believes that managed accounts should only be offered to a more
sophisticated participant base.