News
Cogent Reports: DC Advisors Increasingly Turn to External Managers for Target Date Funds
Proprietary target date offerings are no longer a shoo-in
Nearly half (47%) of all advisors selling defined contribution (DC) retirement plans now recommend an external manager for target date funds rather than the proprietary target date funds offered by the plan recordkeeper. What’s more, the likelihood of recommending external target date offerings increases by the level of DC production, with nearly six in ten (59%) DC specialists managing $50 million or more in DC AUM advising plan sponsors to look beyond current plan providers and include target date funds offered by external asset managers instead. These and other findings are included in the annual Retirement Plan Advisor Trends™, a Cogent Reports™ study by Market Strategies International.
According to the report, four in ten DC advisors (41%) recommend a target date or lifecycle fund as the plan’s default investment option, more than twice the number who suggest any other type of qualified default investment alternative, signaling that target date funds are now the principal investment choice among advisor-sold plans.
“This is the first year that we’ve seen plan advisors championing proprietary and non-proprietary options equally, which underscores how competitive the target date market has become,” said Sonia Sharigian, senior product manager and report coauthor at Market Strategies. “Full-service plan providers cannot rely on assets simply flowing in because they are the incumbent recordkeeper. Now more than ever, plan providers need to compete with a crowd of other DC investment managers, who will likely to have more opportunity to showcase their target date solutions.”
The report finds that target date funds are the second most popular investment options that advisors include in their recommended lineups, after traditional, actively-managed mutual funds. In addition, nearly three-quarters (73%) of established DC advisors also recommend index funds to their clients, up from 64% in 2014.
“The move toward external target date providers, along with the increasing popularity of index funds, shows that retirement plan advisors are acknowledging their clients’ concerns of managing plans more responsibly, including seeking the best overall value for the money,” said Linda York, vice president at Market Strategies. “Among the elite group of DC specialists, we find strong preference for both active and passive target date fund providers, indicating that asset managers will not only need to compete on performance and price, but also find ways to further differentiate their target date offerings in the marketplace.
Top 10 Recommended Target Date Providers by DC Specialists ($50M+ in DC AUM)
- Vanguard
- Fidelity Investments
- American Funds
- BlackRock
- T. Rowe Price
- J.P. Morgan Asset Management
- John Hancock Funds
- American Century
- Schwab Funds
- Principal Funds
About Retirement Plan Advisor Trends
Cogent Reports conducted an online survey of a representative cross section of 486 plan advisors in August 2015. Survey participants are required to be actively managing defined contribution (DC) plans. In determining the sampling frame for this study, Cogent Reports ensures data are representative of the DC advisor population as determined by Cogent Beat™ Advisor. Strict quotas are set during the data collection period, and post-fielding statistical weighting (where necessary) is applied. The data have a margin of error of ±4.45% at the 95% confidence level. Market Strategies will supply the exact wording of any survey questions upon request.
Anne Fallon
Director, Syndicated Marketing
617.715.7611