Opportunities in Target Date Funds

Transcription

1 Opportunities in Target Date Funds Where DCIO managers can compete in the evolving world of target date products amid the growing influence of open architecture and customization. March 2016 Ignites Research reports are sold on an individual or annual subscription basis. For pricing information, please contact Ben Northover at (212) or at

2 Table of Contents Executive Summary Methodology Key Takeaways From the Report Chapter 1: How Target Date Funds Are Evolving The Growth of Passive Chapter 2: Assessing Target Date Funds The Top Target Date Fund Families Chapter 3: The Gradual Opening of Open Architecture Where Open Architecture Is Taking Hold Chapter 4: Custom Target Date Funds Broader Prospects Managed Accounts: An Alternative to Custom TDFs? Main Recommendations for Action From the Report Table of Illustrations Figure 1: Elite Plan Advisors on Pct. of Client Assets in Types of Target Date Funds (TDFs) Figure 2: Growth of 40 Act Target Date Mutual Fund Assets Figure 3: Top 10 Target Date Mutual Fund Managers, 12/31/ Figure 4: Actions Being Considered in 2016 Regarding Target Date Funds Figure 5: Likelihood of TDF Managers to Use Passive or Active TDF Allocations Figure 6: Top Factors in Selecting TDFs Figure 7: Top Third-Party Assessment Factors of TDFs Figure 8: Top Target Date Fund Families for Brand and Cost Figure 9: Top TDF Families for Investment Performance and Active/Passive Blend Figure 10: Top TDF Families for Open Architecture and Underlying Funds Figure 11: Plan Sponsors on Non-Proprietary Funds in Current DC Plans Figure 12: Pct. of Plans TDF Assets in Non-Proprietary Funds or Managers Figure 13: Top Five Qualities TDF Product Managers Seek in Outside Asset Managers Figure 14: Asset Classes Within TDFs Most Likely to Use Non-Proprietary Managers/Funds Figure 15: Asset Classes Where TDF Product Groups Use or Plan to Add Outside Managers Figure 16: Use of Custom TDFs in Advisor-Sold DC Markets Figure 17: Vehicles for Sponsors Custom TDF Use Figure 18: Advisors, Sponsors on Why Use Custom Target Date Funds Figure 19: Top Concerns About Adding or Maintaining Custom TDFs Figure 20: Plan Sponsor Use of Managed Accounts Figure 21: Pct. Of Plan Assets Advised by FT 401 in Managed Accounts Figure 22: Top Concerns With Using Managed Accounts as DC Plan Offering Opportunities in Target Date Funds March 2016

3 Executive Summary Target date funds have become a dominant force in the DC market. This creates challenges for DCIO managers, especially those operating in the retail DCIO market. Fortunately, open architecture and customization are slowly transforming the products and creating more openings for all sorts of managers. That brings potential opportunities even for the DCIO manager that doesn t offer its own target date fund (TDF). A sure sign of that evolution in the retail DCIO market: when Ignites Retirement Research surveyed elite plan advisors, we found that only 43% of the target date assets in their clients plans are in traditional, single-manager TDFs. Instead, some 33% of TDF assets are in multi-manager products, and another 15% are in custom target date funds. What s more, plan sponsors are more open than ever to rethinking their target date fund offerings. Some 53% of small and midsize plan sponsors we surveyed said they were considering comprehensive reviews of their TDF managers in And 26% were thinking of switching from a traditional target date fund to a custom one. The TDF segment is very competitive, and asset managers will have to be smart and fight for those opportunities. And while fees are a critical factor in TDF sales, they re far from the only concern particularly among the advisors influencing sponsors target date decisions. When specialist plan advisors ranked the top TDF families for us, they put a lot of importance on performance, brand and other factors. That means tackling the TDF market is an issue for more than just managers product departments. The report identifies important roles for DCIO managers marketing departments and their sales and relationship teams in navigating this shifting terrain. To help managers leverage target date trends into opportunities, this report addresses four main questions: 1. What does the landscape for target date funds look like now, and how is it developing? 2. How is the assessment of target date funds maturing, and how does that affect the evolution of the TDF market? 3. Where is open architecture creating opportunities for managers of underlying funds? 4. What s the impact of customization on the retail target date market, and how is it changing the sales process? Loren Fox, Rita Raagas De Ramos and Matthew Van Wagenen, report co-authors 3 Opportunities in Target Date Funds March 2016

4 Methodology This report is based on proprietary surveys of four main audiences conducted by Ignites Retirement Research: 1. We solicited the opinions of the Financial Times 401 Top Plan Advisors, a select group of DC plan advisors from across the U.S. with an average of $770 million in DC plan assets under advisement. Advisors applied for inclusion in the list, which was published in the Financial Times. Ignites Retirement Research ranked the 401 plan advisors, and our research partner, Broadridge Financial Solutions, provided unique data from its proprietary databases to help identify advisors who specialize in serving DC plans. These are true specialists: the average advisor on the list has 71% of his or her total practice s assets under management concentrated in DC plans. For this report, we surveyed 225 of the FT 401 advisors in December 2015 and January 2016; that group managed $162 billion in DC plan assets as of Sept. 30, For the perspective of sponsors, we surveyed 200 plan sponsors in December Most are in the small market: 80% are under $200 million in size, and the median plan had $23 million in assets. All sponsors offer DC plans as primary benefits to employees. 3. To get the views of DC plan participants, we surveyed 1,020 individual plan participants from across the U.S. in December Some 97% had at least $100,000 in savings and 33% had more than $1 million. All participants were 40 to 70 years old: 36% were in their 40s, 33% in their 50s, and 31% in their 60s. 4. For the perspective of target date fund (TDF) managers, we surveyed product executives with responsibilities for TDFs at 16 of the top target date fund providers. The respondents, surveyed in May-June 2015, represent over $200 billion of 40 Act TDF assets Money-Media Inc. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. 4 Opportunities in Target Date Funds March 2016

5 Ignites Retirement Research is dedicated to helping DCIO teams optimize their exposure and use in employer-sponsored retirement plans. Using proprietary surveys, interviews, and analysis of third-party data, our specialized reports provide a 360-degree view of a key topic in the industry, yielding valuable insight and actionable recommendations. Core topics of coverage include: DCIO sales strategy DCIO marketing DC plan advisors Investment products Distribution channels Investor preferences Clients include: Broadridge Financial Solutions Fidelity Investments Goldman Sachs Janus Capital John Hancock Investments Lincoln Financial Group OppenheimerFunds T. Rowe Price Wells Fargo For information on subscriptions or single-report purchase, please contact Ben Northover at BenN@Ignites.com or Personnel Loren Fox is Director of Research at Ignites Research. He had been a senior research analyst at Strategic Insight. Prior to that Loren was a journalist, working at Institutional Investor and elsewhere. He earned his BA from Johns Hopkins University and MS from Columbia University. Contact Loren at lfox@money-media.com Rita Raagas De Ramos is US Research Manager at Ignites Research, where she is part of the Distribution and Retirement services. She was previously the Managing Editor of Ignites Asia, and before that worked at Dow Jones Newswires, UPI, and elsewhere. She earned a BS from the University of the Philippines. Contact Rita at rderamos@money-media.com Matthew Van Wagenen is a Research Analyst at Ignites Research, where he helps probe retail distribution and DCIO issues. He was previously a senior analyst at Corporate Insight, researching the US brokerage industry; he has also worked in public relations. Matt earned his BS from Seton Hall University. Contact Matthew at mvanwagenen@money-media.com Michael Ferraro is the Operations Manager at Ignites Research, where he oversees the major processes and systems. Previously, he was the Manager of Direct marketing for MandateWire, Pensions Expert, DPN and Ignites Research. Michael currently holds a BS from York College of Pennsylvania and an MBA from Dowling College. Contact Mike at mferraro@money-media.com 5 Opportunities in Target Date Funds March 2016