Does an open-architecture, multi-manager lineup make sense for 401k target date funds?
John Hancock Investments thinks so, and published a new white paper to the effect.
It argues that 401k plan participants in target date funds deserve the same benefits afforded by open-architecture lineups at the plan level, and it draws on data and anecdotal feedback from a variety of third-party surveys of plan sponsors, investment consultants, and elite DC plan advisors.
“Today, plan-level best practices call for an open-architecture, or multimanager, lineup of investment offerings, but that line of thinking rarely extends to target-date portfolio construction,” Andrew Arnott, the firm’s president and CEO and author of the report, said in a statement. “If open architecture is important, then perhaps more target-date funds should be open, incorporating a variety of specialized teams based on their merits.”
The paper notes that 401k participants benefit from asset manager diversification, and many larger plan sponsors “have already moved to reduce the risks of manager concentration by complementing or replacing single-manager target-date funds in their lineups with multimanager target-date funds.”
However, other sponsors, particularly among the midsize and smaller plan segments, may still have work to do, the company claims—especially in light of increasing plan-related litigation and prospective changes across the retirement regulatory regime.
This is part of a broader focus the firm is making in 2017 on target-date investing inside of retirement plans, it adds.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 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.
