Q&A: Seeking a More Perfect TDF

In 2015, Philip Chao, chief investment officer of Experiential Wealth Inc., set out to create a more perfect retirement plan investment solution in an imperfect marketplace.

“I wanted to create a better solution,” says Chao, also the founder of Nexus338, the firm that ultimately came to offer that solution. “I don’t want to use the word ‘perfect,’ because there is no perfection in life. But I wanted to make something with the simplicity of the TDF and yet personalized for every participant without the necessity of engagement. That would be pretty darn close to perfection.”

About eight years after he started, Chao launched his customized TDF, iGPS, through a partnership with investment manager PIMCO and platform provider iJoin, which makes it available on about 50 recordkeeping platforms. As of the end of 2024, iGPS has amassed $208 million in assets among 300 plan sponsors, and the fiduciary and investment innovator is expecting the business to more than double in 2025.

Chao spoke with PLANADVISER for this month’s special coverage series on TDFs. The answers below were edited for length.

PLANADVISER: Can you discuss why you first wanted to work on a more personalized TDF back in 2015, before the personalization craze in defined contribution investing had really taken hold?

CHAO: Let me be clear: I love managed accounts, the concept. I love them in terms of their personalization, the flexibility and how they can be customized however you want to use them. In an ideal world, everybody should have a managed account, but we don’t live in an ideal world. … For one, not everyone has access. In addition, the space is really dominated by two players for years. And then, they were very expensive [as compared to TDFs at that time], and to work really well, it takes participant engagement. And as we know, most participants don’t engage so it is likely imprudent to use it as a QDIA.

On the other extreme was a single-factor target-date fund, which is the beginning of a very early stage of personalization, right? We go from nothing to creating 10-year vintages that gradually reduce investment risk as one approaches retirement. This was also an attempt to meet the ERISA requirement to diversify against the possibility of large losses. But it’s a crude form of personalization, right? 

Just having this simple form of personalization, we saw the incredible uptake rate and popularization of TDFs. Behavioral finance taught us that the ‘doing it for us’ approach through a QDIA drove positive long-term results. Over time, we lowered prices on [TDFs] further through indexing, and even lower through CITs, and it became the overwhelming choice for default. Then more tweaks came along such as offering three different glide paths to choose from. Then we went further by catering them to a large company’s participant pool. But these approaches remain mostly based on national average input data and not really personalization as envisioned.

PLANADVISER: Please explain how your solution goes on to offer a more personalized TDF.

CHAO: Well, we didn’t use the word personalization then. That, I think, is a new word from around 2020 or so. 

What I approached PIMCO with, originally, was the idea of blending the best features of a target-date fund and a managed account into a default environment. I had been working with them for about 20-plus years—I liked their target-date approach. It took some time for PIMCO to get comfortable with the idea of personalizing target date funds. But I kept at it, and in a few years, they said yes. From there, we worked out all the legal agreements and got the product team to update their asset allocation methodology to include personalization.

The way iGPS structure is that, instead of using national averages inputs (which his universally applied by all TDFs) plus just one data point of age, it draws on five participant data points available from the recordkeeper. That is: age, salary, account size, deferral rate and employer match rate. With those five data points, plus the national average on outside assets, and the projection of what the income will look like at normal retirement age and Social Security projection, we have an evolved personalized portfolio for each individual. No more one size fits all.

PLANADVISER: Once it was ready, how did you make it available for plan sponsors?

CHAO: I identified iJoin as a platform partner to give its network of recordkeepers access to iGPS. They ARE a great partner, because we can be connected with about 50 recordkeepers, as opposed to going to one recordkeeper and paying a million dollars and taking a year for all the setup and compliance to go through. I designed iGPS with an all in fee of 29 basis points, which is similar to a blended single factor TDF in the marketplace. It’s 20 basis points payable to PIMCO for asset management and personalization asset allocation methodology, 4 basis points to recordkeepers for their added efforts and service needed, 2 basis points to iJoin for their participant experience support and 3 basis points to my firm for serving as the participant-level 3(38). 

PLANADVISER: Where does iGPS stand today in terms of usage, and where do you see it going in 2025?

CHAO: So far, we have $285 million as of the end of 2024, but that was starting from just about zero in January 2024. This represents about 300 plans and covers 21,000 participants. All of it is re-enrollment; all of it is QDIA. Because that’s what I built it for, because it will impact the most people, most efficiently. And the sticky rate is over 94%—which is high for re-enrollment—and once you re-enroll, people stay. 

It’s a very simple situation: What are the objectives for iGPS? To increase personalization at a low cost and with the least amount of engagement needed, as well as to best meet fiduciary responsibility and minimize fiduciary liability. 

If you tell a plan adviser that you can solve for those problems and you get it in what acts like a managed account in the form of a QDIA default, what do you think they would say? 98.9% of them, I think, would say, ‘