Why This Target Date Trend Continues in 401ks

Choice of glide path arguably most important decision for plan sponsors

401k, target date funds, retirementThe reasons are many, and important.

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.

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