The Movement to Personalize Target Date Investing

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The transition from a “big three” (Fidelity, Vanguard and T. Rowe Price) investment manager oligopoly to an advisor-dominated participant-centric industry is happening. Advisors are playing a key role in the transformation. Despite their popularity, target-date funds (TDFs) are one-size-fits-all, set-it-and-forget-it approaches that are limited in their suitability because investing is personal.

TDFs are losing their status as the most popular qualified default investment alternative (QDIA).

Custom TDFs

Approximately $500 billion of the $3.5 trillion in TDF is customized by advisors who use the funds on a platform to populate a “custom” glidepath that is not customized for the plan. It is not a one-size-fits-all solution. Custom TDFs are popular with larger plans and are provided by marquee consulting firms.

Flexible TDFs are an extension of this idea. They are more honest in the sense that they more closely match their glidepaths with client demographics and risk tolerances. They are being used successfully in smaller plans, as discussed in the next section.