(A version of this article was originally published by author on NAPA Net.)
Though the big three target date fund (TDF) managers are also record keepers which may account for their combined TDF market share of over 70%, more advisors, especially experienced DC (defined contribution) advisors, are recommending TDFs not managed by the plans’ record keeper.
According to a Cogent report, 47% of advisors surveyed recommended non-proprietary TDFs, up from 32% two years ago; 59% of advisors with more than $50 million in DC AUM are also recommending TDFs not managed by the record keeper, compared with 37% in 2013. About four in ten (41%) of advisors recommended a target date or lifecycle fund for their clients’ QDIA.
Though there’s nothing wrong with using a record keeper’s proprietary TDF, regulators will look for a documented due diligence process where other TDFs are considered. The DOL came out with guidance in 2013 about a recommended due diligence process. Some record keepers will lower costs of administration when plans use their TDFs which is not a good reason to choose them while some may argue it is a good reason not to use them.
Though more advisors are recommending index funds to their DC clients, active management is still the number one recommended strategy used by 98% of advisors; 73% are recommending passive strategies and just 1% are using CITs.
According to Cogent VP Linda York, other highlights from the report include: 81% of advisors work on IRA rollovers or help terminated participants when they leave the plan; and one-on-one advice is being provided by 82% of advisors.
The top 10 recommended TDF providers by DC Specialists ($50M+ in DC AUM) are:
1. Vanguard
2. Fidelity Investments
3. American Funds
4. BlackRock
5. T. Rowe Price
6. J.P. Morgan Asset Management
7. John Hancock Funds
8. American Century
9. Schwab Funds
10. Principal Funds
