Blended TDF Uptake Remains Low, but ‘There’s Clearly Something Shifting’

When surveying consultants and advisers from 32 different firms, 93% said they were interested in blended TDFs for the future, but its current use lags at just 9%, says Michael Doshier, a senior defined contribution adviser strategist at T. Rowe Price, while attending the 2023 PLANADVISER National Conference in Scottsdale, Arizona.

Doshier says based on T. Rowe Price’s most recent information, 48% of TDF assets are passive, while 31% are active, and only 9% are blended. However, when advisers were asked, “What would you likely put as the front option for your clients moving forward?” 93% of respondents said they would opt for blended TDFs, while just 3% were interested in each of passive and active. He says that answer “really blows me away.”

“I don’t know how it’s going to happen,” he says. “I don’t know if it’ll happen in five or 10 years, but with that level of focus from many of the most significant influencers in the industry being asked what they think, I’m not going to bet against it.”

In terms of a shift that has happened within plans, Doshier says that T. Rowe’s research showed 48% of the target-date assets in DC plans, not just large market, are now in collective investment trusts. For years, Doshier says, there was already widespread conversation about CITs. Now T. Rowe Price is the largest active manager of TDFs in the industry, including 52% CITs. Just five or so years ago, the industry number for CITs was in the low 20s.

“I don’t know that I’ve seen much happen that fast in the DC space, ever,” Doshier says. “But there’s clearly a big, big drive. [Advisers] probably personally experienced this or see there’s a lot of relationship pricing arrangements going on, trying to drop that lower minimum number so that more plans can qualify for CITs and not get closed up by minimums.”

He says the value proposition of why CITs are being chosen rather than mutual funds is almost solely based on price. When people want to build a custom solution, it is quicker, easier and less expensive to create that in a CIT structure than in a 40-act mutual fund structure, which requires extensive registration process. Many large firms have launched their own white label qualified default investment alternative TDFs, which are almost exclusively CIT.

“The big pushback on CITs used to be that participants were going to push back because they can’t look it up on the Wall Street Journal’s webpage,” he says. “I don’t hear that now, but I used to hear that nine times out of 10 when CITs would come up. Now it’s one out of 10. I think there’s clearly something shifting.”