PLANADVISER - May/June 2021 - 22

investments | cover story
Demand for Asset Allocation Solutions
Participants show interest in having both target-date and target-risk funds available. Invesco found
that almost 70% preferred professionally managed options to single asset class options.
32% overall
34%
male
30%female
37% overall
35%
male
39%female
31% overall
31%male
31%female
Source: Invesco, " Watch Your Language "
Target-Date Funds
Target-Risk Funds
Single Asset Class Options
" The TDF is the crown jewel of the defined contribution
plan, and it's where most participant assets are held, "
Verdeyen says. " But there is a recognition that we can do
even better, even if the TDF has served us well over the
past 15 years. " The next generation of TDFs may consider
factors other than age such as an individual's salary,
deferral rate or other sources of savings, Verdeyen adds.
Streamlining Choices
For many plan sponsors, reviewing participant data and
learning more about investor behavior has led to a realization
that the quality of funds in each plan is more important
to outcomes than the quantity. This has resulted in
steadily shrinking fund lineups.
" For a long time, we as an industry were in a place
where retirement plans had many investment options,
and the focus was on education and getting participants
to invest properly, " says Paula Smith, senior vice president
of product strategy and development at Voya Investment
Management in New York City.
However, research showed that a larger number of
investment options led to lower participation rates, and plan
sponsors began looking for ways to pare back their plans.
In 2011, the average large employer offered more than
25 funds as investment options to participants;
10 years later, that number is less than 16, according to
Fidelity Investments.
Plan advisers agree that, while it is important to make
sure a plan offers funds in all major asset classes, having
too many fund choices can lead to investor confusion or
decision fatigue.
" The only rule of thumb is to provide enough diversification
for people to build individualized portfolios for
themselves. On the equity side, the conventional wisdom
is to make sure you're covering the Morningstar Style Box, "
says Shamburger, referring to Morningstar's nine-square
grid that provides a graphical representation of a stock's
" investment style. "
Besides helping participants avoid decision fatigue,
streamlining the menu has benefits for the plan sponsor,
as well, says Chris Herman, head of investment strategies
at Fidelity Investments in Boston.
" When a plan sponsor has 25 funds
" The only rule of thumb is to
provide enough diversification
for people to build individualized
portfolios for themselves. "
22 | planadviser.com May-June 2021
in its lineup, it has responsibility for
oversight of all 25 of them, " he says. " If
you reduce that to 15 funds, you have a
lower burden of work and a lower risk.
And when you reduce the funds in a
category to one, you avoid a situation
where someone might claim you had
one good one and one bad one. After
all, one fund is going to always outperform
the other. "
today,

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PLANADVISER - May/June 2021

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