The move towards non-proprietary fund products continues, at least in target-date lineups. Diversifying allocations and outsourcing non-core areas of expertise are just two reasons to seek non-proprietary offerings in investment menus, according to the latest research from Cerulli Associates.
“The drivers behind a target-date manager choosing open architecture most commonly include the belief that participants benefit from asset manager diversification and the need to outsource allocations where they do not offer best-in-class strategies, according to 77 percent and 69 percent of managers, respectively,” the Boston-based research and consulting firm notes in its release.
Limitations to open-architecture adoption stem from target-date managers having in-house expertise already, it adds, and also the fact that incorporation of unaffiliated managers would increase the overall expense ratio of the fund.
Cerulli contends that “choice of a target-date fund glide path is arguably the most important decision for plan sponsors relative to the long-term outcomes of plan participants.”
It also notes that, by gaining an understanding of employee demographics and plan sponsor perspectives on retirement savings and investing, target-date managers are better positioned to convey how their product’s glide path aligns with the plan’s objectives.
The October 2017 issue of The Cerulli Edge – U.S. Monthly Product Trends Edition discusses the use of open architecture as a way for managers to benefit from increased demand for target-date products, and the challenges and opportunities that have resulted from the significant asset growth in the U.S. target-date market over the past decade.
The firm also released mutual fund asset totals for the third quarter of 2017, finding more than $14.1 trillion.
Year to date, flows total $204.4 billion, of which $42.7 billion came during the third quarter.
ETFs garnered flows of $86.9 billion during the quarter, bringing the year-to-date figure to $330.6 billion. Asset growth has accompanied flows, as ETF assets increased 6.5 percent, finishing above $3.1 trillion.
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.
