401k Fintech Focus: Tips to Ensure the Right Target Date Selection
Forget doing it yourselfâAmerican Funds completely incorporates the Department of Laborâs famous five âTips for ERISA Plan Fiduciariesâ in Target Date ProView, its intuitive target date fund comparison tool.
âItâs designed to be objective, so all the data points come from Morningstar,â says Mark Alteri, Defined Contribution Retirement Consultant with American Funds. âIt’s aligned with the DOLâs tips for target date fund evaluations that came out in 2013, and theyâre all tabs within Proview.
In as little as three steps, an advisor can quickly get a target date fund output analysis, with a goal of helping plan sponsors 1) perform due diligence on the current series they might be using to reaffirm that itâs appropriate and effective, or 2) aid consultants and advisors in the search for new target date series for clients.
For those in need of a quick refresher, Alteri helpfully lists the DOLâs tips:
- Establish a process for comparing and selecting target date funds;
- Understand the fundâs investments;
- Review the fundâs fees and investment expense;
- Establish a process for the periodic review of selected target date funds; and
- Document the process.
âConsultants and advisors can access it from American Funds.com/Proview. They simply click the start button and the landing page pops up. Any registered mutual fund in the Morningstar database will then be listed from which they can choose.â
In keeping with the intuitive, simple directive, the 10 largest target date managers by assets under management are broken out and listed at the top, with all the other available managers listed below.
âIn the spirit of objectivity, you donât have to select American Funds, but we hope weâve earned the right to be included in our comparison tool,â Alteri adds with a laugh.
Up to four managers can be chosen for comparison at any one time (again, so itâs not âbusy and overwhelmingâ), but itâs critical that itâs a true apples-to-apples comparison, so the tool defaults to the lowest cost share class for each manager for a five-year performance period.
âBecause it’s based on DOL tips, it includes an understanding of each managerâs glide path, the risk measures, the returns, what youâre paying for the series, and then understanding the underlying building blocks.â
The resulting summary page provides both broad and detailed information on each of those characteristics, as well as glide path analysis for equity vs. fixed income at each major investment stage: accumulation, transition and distribution. Itâs not only at a high level, he notes, but also by specific asset class (large-, mid- and small-cap, fixed income allocations, etc.).
âWhat most folks find value in is the output analysis. By simply clicking a button, consultants and advisors can provide a PDF file to present to the plan sponsors or, of course, to use to document the selection process for the clientâs fiduciary files.â
In the spirit of objectivity, there is no American Funds logo on any page, so itâs not branded as American Funds (it will appear in the disclosure information, however, for obvious compliance reasons).
âWe allow white-label customization on the cover page, so you can add in the advisorâs name, the firm name, address, etc., as well as the clientâs name and a description. The overview page includes important information on each manager such as target date AUM, the seriesâ inception, âto vs. throughâ information, an examination of the underlying percent of active assets, manager tenure, as well as a sampling of costs, results, percentile rank and standard deviation for the accumulation, transition and decumulation phases. Itâs all Morningstar-data driven and updated monthly.â
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
