PLANADVISER -May/June 2022 - 27

" Advice is paramount, and the
use of a financial professional
at some point in someone's
financial life is very important. "
12-month period, that translates their balance into potential
income, Kohn says. He sees that requirement as a " green
light " for product development that focuses on providing
income. The result should be a transition from first-generation
target-date funds to next-generation target-date funds,
or target-date-income funds, he says.
While target-date funds in their current iteration do a
good job of helping participants save for retirement, they
are not designed to help with spending down those assets
once the person's golden years begin, Kohn says.
Matt Brancato, principal and head of client success at
Vanguard in Devon, Pennsylvania, observes that, as the
industry embraces income solutions, this presents an opportunity
for a wider range of them. " We have shifted from
questions about whether annuities belong in a plan to more
sophisticated conversations about how to combine investment
products with the guidance investors might need to
navigate a complex decumulation situation, " he says.
Advice and Managed Accounts
Another area within QDIAs where Kohn expects evolution
this year is managed accounts. " There are so many great
providers out there that are allowing advisers to customize
managed account solutions, which were very high-touch
fiduciary concerns even a few years ago, " he says.
Barnes says his firm has seen more interest from plan
sponsors, which are starting to consider managed account
solutions. " They're looking at them as an opt-in solution or
even considering them as part of a dynamic QDIA, where
you're defaulted into a managed account after age 55 or 60
from a target-date fund, " he says.
Even for plan sponsors not ready to make the switch to
managed accounts, arranging for advice remains important,
and it is a vital value-add for providers. " Advice is paramount,
and the use of a financial professional at some point
in someone's financial life is very important, " Kohn says.
" We are seeing fintech help automate that. We're going to
see that become more and more prevalent as new entrants
create mass customization for advice. "
Barnes has seen a similar trend and interest among his
clients. " I can't think of a client we have won in the past
few years where we didn't include advice and education, " he
says. " We offer a CFP [certified financial planner] line where
participants can call in and get point-in-time fiduciary
advice. In markets such as this, we're seeing a real appetite
for that service. "
According to Brancato, many plan sponsors want their
providers to offer advice to participants,
as they are unable to do it themselves. The
ability of DCIO providers to offer advice
within managed accounts remains a
differentiator, and Brancato projects that
advice will become an even more important
component of retirement plans over
the next decade, with an evolution in the
type of advice offered, including thirdparty
advice options.
As plan participants get older, and their financial lives
get more complicated, that advice component becomes even
more important, Brancato says. " Individuals with complex
circumstances have more complex decumulation needs, " he
adds. " It might make sense for them to start in the targetdate
fund and then, over time, migrate to a low-cost advice
product that meets those more complex needs. "
An Eye on ESG
Despite the industry conversations about introducing environmental,
social and governance options into 401(k) plans
in recent years, there has been little movement to do so,
according to Swift.
" It may be something that plan participants are asking
about, but I don't know if I'd say the same about plan sponsors, "
Keenehan says. " They're not proactively reaching out
and asking about ESG, but they're [intrigued] when we bring
it up. It piques their interest. "
Even so, plan sponsors that have introduced ESG options
into their plan menu have not seen significant uptake,
Keenehan says, but he concedes that that is likely because
such funds are not in the QDIA, meaning that simple inertia
may be keeping some participants from opting into such
investments.
Still, as more younger people enter the workforce and
begin contributing to a 401(k), Keenehan says, he expects
that interest to grow. " ESG is more of a long play that will
happen over time, " he says.
Barnes has a similar outlook regarding ESG and notes
that while the Department of Labor has issued proposed
rules that support ESG funds within 401(k) plans, many
plan sponsors are waiting for that guidance to be finalized.
" I have found that demand from my clients is much lower
than the appetite seems to be in the investment industry, "
he says. " That might change when we get the final rules. For
now, we see it as something that's worth talking about with
our DCIO partners, but it's not something I've seen strong
adoption of with plan sponsor clients. "
From Brancato's perspective, ESG continues to be an area
of both innovation and debate. " The big thing we're hearing
from plan sponsors is they need clarity from a regulatory
perspective, before we're going to see any mass adoption
of ESG, " he says. " What we're hearing is that there's more
interest. So, like with any other trend, we are doing a lot of
research on how we can help investors drive toward those
outcomes and incorporate the ESG preferences they're
looking for. " -Beth Braverman
PLANADVISER -May/June 2022

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