401k Fintech Focus: Tips to Ensure the Right Target Date Selection

American Funds' Target Date ProView includes an understanding of each manager’s glide path, risk measures, returns, cost, understanding investments and more

401k, target date, American Funds, FintechDoes American Funds hit the mark?

Forget doing it yourself—American Funds completely incorporates the Department of Labor’s famous five “Tips for ERISA Plan Fiduciaries” in Target Date ProView, its intuitive target date fund comparison tool.

“It’s designed to be objective, so all the data points come from Morningstar,” says Mark Alteri, Defined Contribution Retirement Consultant with American Funds. “It’s aligned with the DOL’s tips for target date fund evaluations that came out in 2013, and they’re 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 it’s 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 DOL’s tips:

  1. Establish a process for comparing and selecting target date funds;
  2. Understand the fund’s investments;
  3. Review the fund’s fees and investment expense;
  4. Establish a process for the periodic review of selected target date funds; and
  5. Document the process.

“Consultants 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.”

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.

“In the spirit of objectivity, you don’t have to select American Funds, but we hope we’ve earned the right to be included in our comparison tool,” Alteri adds with a laugh.

Up to four managers can be chosen for comparison at any one time (again, so it’s not “busy and overwhelming”), but it’s critical that it’s 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.

“Because it’s based on DOL tips, it includes an understanding of each manager’s glide path, the risk measures, the returns, what you’re paying for the series, and then understanding the underlying building blocks.”

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. It’s not only at a high level, he notes, but also by specific asset class (large-, mid- and small-cap, fixed income allocations, etc.).

“What 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 client’s fiduciary files.”

In the spirit of objectivity, there is no American Funds logo on any page, so it’s not branded as American Funds (it will appear in the disclosure information, however, for obvious compliance reasons).

“We allow white-label customization on the cover page, so you can add in the advisor’s name, the firm name, address, etc., as well as the client’s name and a description. The overview page includes important information on each manager such as target date AUM, the series’ inception, ‘to vs. through’ 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. It’s all Morningstar-data driven and updated monthly.”

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