PLANADVISER - November/December 2017 - 38

MOVERS & SHAKERS
Ruthann Pritchard
Institutional Portfolio Manager, Fidelity Investments
Ruthann
Pritchard
speaks
with
PLANADVISER about the evolution of
target date strategies and the challenges
advisers and plan sponsors
face in the selection and evaluation
of the investments.
PLANADVISER: Target date strategies
are more complex now than they
were when first introduced. How
do advisers approach selection and
evaluation of these options, and how
has that evolved?
RUTHANN PRITCHARD: Twenty-one
years ago, Fidelity became a pioneer
in target date investing with the launch
of the Fidelity Freedom Funds. Plan
sponsors embraced the strategies, but
it was another 10 years before target
date investing really took hold with the
groundbreaking
Pension
Protection
Act of 2006 [PPA]. At that time fund
adoption and usage gained significant
traction and with that development
there was also significant growth
in the number of target date providers.
Many employers were also shuttering
their defined benefit [DB] plans, leaving
defined contribution [DC] plans and
target date strategies as the primary
retirement savings vehicles for many
investors. All combined, these events
led to an evolution within the target
date industry including the incorporation
of many of the principles, beliefs
and investment strategies that are at
the core of DB investing.
In selecting a target date strategy It's
important to understand the goal of
the strategy and what research led
the investment manager to select
that particular goal. Then, ensure the
investment philosophy, beliefs, and
implementation of the strategy align
with you and your clients goals.
Performing due diligence on the glide
path is key. It's important to understand
how the glide path was developed and
how the research supporting the glide
path manifests itself in the roll down
[the change in asset allocation over
the time horizon of the investor].
Understanding implementation is
also important. How is the target date
provider achieving investment return
beyond the strategic asset allocation?
Are there additional asset classes,
investment strategies, active asset allocation
and/or active security selection
that the provider has access to that can
potentially improve outcomes? How
have those strategies performed?
With respect to fees and resources, the
question to ask is whether or not you
believe that you are getting good value
for the fees being paid. In the case of
a target date strategy " good value " is
not just historical performance but the
ability to deliver future performance and
long-term outcomes. A provider has to
have the resources and commitment to
evolve the strategies over the long-term.
PA: Beyond some of
those criteria
you already mentioned, what does
the Department of Labor [DOL]
suggest advisers do when selecting
and then monitoring a target date
strategies provider?
PRITCHARD: Guidance from the DOL
largely centers on due diligence. The
adviser and the plan sponsor should
consider performing sufficient due
diligence during the selection process
and ongoing monitoring,
to be able
to assert that they understand the
target date solution the participants
are invested in and that the philosophy
and beliefs of the investment manager
SPONSORED SECTION
surrounding target date investing align
with those of the fiduciary.
The DOL outlines the importance of
having a process and documenting
that process, and so for many plan
sponsors, this includes an Investment
Policy Statement [IPS] which can be
a challenge with target date strategies.
Standard performance and peer
comparisons are generally not helpful
given that all glide paths are unique
to the provider, there are no industry
benchmarks, and peer groups don't
account for differences in glide path
and implementation. As a result, some
adviser
and
consulting
firms
have
removed target date strategies altogether
from the IPS, others have just
removed peer group comparisons.
PA: One thing that's been a challenge
since target date strategies appeared
is, without any sort of given industry
benchmark for target date strategies,
and with such differing strategies from
fund to fund, how can an adviser and
plan sponsor effectively measure the
performance of these investments?
PRITCHARD: It has to be a multipronged,
or mosaic, approach. Given
that there are no industry standard
glide paths or benchmarks,
fiduciaries
cannot easily compare performance
across providers and strategies. Evaluating
performance against the investment
manager's stated goal or objective
and relative to its own benchmark are
important. While direct peer comparisons
can be difficult in target date strategies,
understanding performance relative
to peers can also be helpful.
At Fidelity we use our strategic asset
allocation as our benchmark. Any
decision above and beyond the asset
PLANADVISER - November/December 2017

Table of Contents for the Digital Edition of PLANADVISER - November/December 2017
