Proprietary Target Date Funds resilient
It seems that DC record keeper’s target date funds (TDF) are losing favor with plan advisors according to a recently released Cogent report. The report cites that 47% of plan advisors have recommended TDFs not managed by the record keeper up from 32% in 2013; the percentages are more dramatic with experienced advisors (57% v. 37% two years ago).
Those sound like harbingers of dramatic change, right? Not so fast. First, the study did not indicate that these advisors are using a large percentage in their plans – only that they have recommended it at least once. Secondly, the three top TDF providers (Vanguard, Fidelity and T Rowe Price) are also record keepers and have well regarded funds and have not dramatically lost market share. Thirdly, so far no one is saying it’s illegal for record keepers to give better pricing if a plan uses their TDF as record keepers are not considered fiduciaries – yet. Finally, the vast of majority or smaller plans are represented by emerging advisors who will not be as quick to swim against the tide.
So headlines aside, custom and non-prop TDFs have a long way to go to really challenge prop TDFs. And it’s not obvious that they should especially if record keeping costs are lower. Perhaps we might even get to the point where advisors use a 3rd party tool not created by one of the TDF providers that matches the TDF with the profile and habits of their client’s employees. What a novel idea!
