T. Rowe’s TDF Team Launches Personalized Offering

T. Rowe Price believes it has come up with a novel way to personalize defined contribution savings with a less disruptive transition from the ever-dominant target-date-fund investments.

This Tuesday, one of the country’s largest TDF providers introduced Personalized Retirement Manager, a more customized investment allocation built on its TDF asset allocation methodology. The product launched in August on T. Rowe Price’s recordkeeping platform and is available to some plan sponsors as a dynamic qualified default investment alternative that flips participants into the solution at some point near middle age, says Wyatt Lee, head of target-date strategies at the T. Rowe Price Group Inc.

“When I think of managed accounts, I think of a stand-alone offering: I input my data, I get the results,” Lee says. “What’s different about [PRM] is that we’ve worked hard to try to tie this in seamlessly with our target-date offering.”

Lee says, unlike being moved from TDF investments into a totally new investment methodology and framework, T. Rowe’s retirement manager keeps participants in the same underlying investments as the TDF, with adjustments made from data pulled from the recordkeeper, along with any inputs the participant provides.

At the moment, if a plan sponsor on T. Rowe’s platform wants to institute the manager as a QDIA, it comes at no additional charge. If a plan sponsor or its adviser wants to make it an opt-in for participants, it costs about 5 basis points, a price point Lee argues is much cheaper than the usual managed account fees.

Managed accounts have seen growth in recent years from offerings via providers such as Edelman Financial Engines and Morningstar Inc., along with recordkeepers such as Fidelity Investments and Empower. Those offerings often note access to individual financial advice with a representative for a relatively low fee—though some in the industry, such as consultancy NEPC, have questioned whether those additional fees are worth it if the services are not being used.

Getting Personal

PRM was built with Morningstar Inc. technology to connect to the participant data in the recordkeeping system. This setup will, down the line, make the offering more easily accessible for other recordkeepers, Lee says.

T. Rowe’s pitch to plan sponsors is that, when a participant’s investment allocations change based on  T. Rowe Price’s manager, those investments are still based on the participant’s actual needs and data points, not “because you changed methodologies.”

Participant data to shape the glide path is drawn from the recordkeeper and is likely to include account balance, contribution rate and income. The participant can then add other data, such as retirement goals, a spouse or partner’s assets or assets held outside of the plan.

As with all such products, Lee acknowledges, better outcomes will come from engagement—which has often been shown to be a struggle for DC plans, in part because many participants set and then forget their savings in TDFs. Lee says T. Rowe’s manager sends prompts for engagement and that as participants get reports on their investments, he is hopeful they will engage more.

TDF Backbone

Lee expects the manager will one day offer retirement income advice—whether guiding to a managed payout, a guaranteed income annuity or some combination of strategies.

In a white paper about personalization, T. Rowe’s team noted that TDFs are a truly dominant offering in the DC space, with 98% of its recordkeeping clients offering them in 2023. However, the research team also noted that 14% of DC plan sponsors offer QDIA solutions that transition participants from a TDF strategy into a managed account; another 51% are either actively considering or are interested in using one of these dynamic QDIAs.

Lee, whose team currently manages about $464 billion in target-date portfolios, says the product aligns with the firm’s larger strategy of leveraging the success of TDFs in workplace retirement investing.

“TDFs have become ubiquitous in the DC space,” he says. “That is the core of most DC plans, and we are working on what we can do to evolve around that core.”