classes and allocations within the strategic glide path are active decisions.
Other target date providers might use
a roll up of all of the benchmarks of the
underlying funds as a top level benchmark for the funds. In this case relative
performance might be a measurement
of the skill of the underlying managers
making active security selection decisions, but may not give any insight into
the success of asset allocation decisions made by the manager.
Peer comparisons are challenging,
not only because each provider’s glide
path is different, but because generally
all target date strategy peer groups are
categorized by target year, meaning
that active, index and blended implementations, as well as “to” and
“through” providers, are all included in
the same category.
PA: How does Fidelity think about
value in relation to target date strategies investments?
PRITCHARD: We don’t believe that
“value” means paying the lowest fee in
the marketplace. We believe that value
is paying a competitive and fair price
for a deep team and resources that can
potentially deliver strong participant
outcomes throughout retirement.
One strong and positive trend that we
continue to see evolve in the market is
that plan sponsors are designing their
DC plans to provide potential retire-
ment income for participants. This
means that plan sponsors are reviewing
benefits design and including auto-
matic enrollment and auto-increase as
part of the plan. It also means that they
are reviewing plan design as it pertains
to withdrawal provisions and loans
to reduce leakage and allow partici-
pants to stay in plan. That commit-
ment also means that from an invest-
ment option standpoint they are hiring
target date providers that can help
achieve retirement income for their
participants. Value to these plan spon-
sors is aligning with a partner who has
the capabilities and resources to do
that at a competitive cost. At Fidelity we
offer low-cost solutions and product
choice flexibility with active, index, and
PA: What else should advisers
consider when presenting the target
date strategies discussion to their
plan sponsor clients?
PRITCHARD: We just released a white-paper that highlights the need to build
a resilient glide path. Building a glide
path that is resilient to different market
environments is key to long-term
success. Additionally, having the investment flexibility, beyond the strategic
glide path, to potentially capitalize on
market opportunities and avoid areas
of market stress can be a key part of a
successful target date strategy.
We have talked a lot about plan
sponsor and fiduciary education but
participant education is also important.
As the default fund for many plans,
participants may not know what they
are invested in and Fidelity believes
that educating a participant as to what
a target date strategy is, how it works
and why it may be the right investment
option, is very important. n
For investment professional use only.
Unless otherwise disclosed to you, in providing
this information, Fidelity is not undertaking to
provide impartial investment advice, or to give
advice in a fiduciary capacity, in connection
“Glide path due diligence means understanding
the beliefs and principles behind the strategic
allocation–why does the provider believe the
allocation is appropriate for a 25 year old, a 45
year old and a 70 year old?”
with any investment or transaction described
herein. Fiduciaries are solely responsible for exercising independent judgment in evaluating any
transaction(s) and are assumed to be capable of
evaluating investment risks independently, both in
general and with regard to particular transactions
and investment strategies. Fidelity has a financial
interest in any transaction(s) that fiduciaries, and if
applicable, their clients, may enter into involving
Fidelity’s products or services.
Target date funds are designed for investors
expecting to retire around the year indicated in
each fund’s name. The funds are managed to
gradually become more conservative over time as
they approach the target date. The investment risk
of each target date fund changes over time as the
fund’s asset allocation changes. They are subject
to the volatility of the financial markets, including
that of equity and fixed income investments in the
U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, and
foreign securities. Principal invested is not guaranteed at any time, including at or after the funds’
Not FDIC insured. May lose value. No bank
Not NCUA or NCUSIF insured. May lose value. No
credit union guarantee.
Third-party trademarks and service marks are
the property of their respective owners. All other
trademarks and service marks are the property of
FMR LLC or an affiliated company.
The information provided herein is general
and informational in nature and should not be
construed as legal advice or opinion.
Before investing, have your client
consider the funds’ investment objectives, risks, charges, and expenses.
Contact Fidelity for a prospectus or,
if available, a summary prospectus
containing this information. Have
your client read it carefully.
FIDELITY INVESTMENTS INSTITUTIONAL
SERVICES COMPANY, INC., 500 SALEM STREET,
SMI THFIELD, RI 02917
© 2017 FMR LLC. All rights reserved.