401(k) Fiduciary Fear: How It’s Causing Product Selection Blunders

Fear drives behavior—who’d have thunk? New research from Boston-based global analytics firm Cerulli Associates finds that fiduciary fears support continued flows into low-cost, passive products in 401(k)s.

“There is an unfortunate misconception among plan sponsors of varying asset levels that low-cost is equivalent to low-risk from a fiduciary perspective,” Jessica Sclafani, associate director at Cerulli, said in a statement. “As such, the industry’s focus on reducing fees supports continued flows into low-cost, passive products. Asset managers feel this pressure, with half identifying increased demand for passive funds as a major challenge to winning defined contribution assets.”

Among the implications of Cerulli’s findings:

“Countering the demand for passively managed funds has been a difficult task in the face of strong domestic equity returns and is not a challenge unique to the DC industry,” Sclafani adds. “What is unique to the DC industry is that demand for passive strategies is being driven by the misunderstanding of many plan fiduciaries that choosing passive is a way to offload or mitigate their fiduciary liability.”

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