PLANADVISER - September/October 2021 - 6

data points //
A Balanced Fund or a TDF?
Weighing their relative merits is an important task for advisers and clients
T
he asset growth in balanced funds
has more than doubled, while the
total in target-date funds (TDFs)
has increased 13-fold in the 15 years
since the Pension Protection Act (PPA)
created qualified default investment
alternatives (QDIAs).
This imbalance is not surprising
to many in the industry, given the
perceived advantages of TDFs. Still,
with so many participants saving for a
retirement date more than 10 years into
the future, advisers and sponsors might
consider whether the funds provide the
best solution for all participants.
" Choosing a QDIA is really a big
decision, potentially the biggest one
that a plan sponsor committee can
make, so you want to make sure you're
doing all your homework and gathering
all the facts before you make it, "
says Kevin Roloff, director of research
at Francis Investment Counsel in
Pewaukee, Wisconsin.
It is also of paramount importance
to monitor the results of this decision,
says Roloff. In the paper " The Unintended
Consequences of Investing for
the Long Run: Evidence From TargetDate
Funds, " academics say managers
of TDFs may even benefit from investors'
set-it-and-forget-it mentality,
which prevents them from adequately
scrutinizing poorly performing funds.
Of course, many TDFs are living up
to their performance goals, frequently
by embracing high levels of risk for
participants with longer time horizons.
The same can be said of TDFs
with closer retirement dates. These
often take more risk than novice investors
expect, leading to strong performance
during bull markets but raising
important questions about what might
happen during the next downturn.
Balanced funds, given their increased
simplicity, even compared with targetdate
funds, are less prone to such issues.
Advisers
concede that
there are
certain circumstances in which a
balanced fund might be a better QDIA
selection for a sponsor than would a
TDF. For instance, balanced funds might
make sense for employers with a less
diverse employee base, for employees
who largely have other sources of retireBalanced
and Target-Date Fund Asset Growth
$1,000B
$1,200B
$1,400B
$1,600B
$1,800B
$200B
$400B
$600B
$800B
Source: ISS MI Simfund
$0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5/21
n Balanced n Target-date
ment income such as a pension, or for
employees who understand investing
and may prefer to take a more active
role in their retirement saving.
" For employers with a more homogenous,
affluent workforce that isn't
looking to their 401(k) as their main
source of retirement income, the
balanced fund might be the right
choice, " says Moustapha Abounadi,
head of business strategy, BNY Mellon
Investor Solutions.
" In that case, " Abounadi says, " the
performance point might be more pertinent
and relevant, making the balancedrisk
approach more appealing. "
Some sponsors might work with a
fiduciary adviser to select passive TDFs,
under the impression that these funds
limit the sponsor's potential fiduciary
liability. " Yes, the investment manager
has fiduciary responsibility, but so does
the plan sponsor, " Roloff says. " That's
why it's important [that they] not rely
solely on the performance assessment
from the provider and instead seek
an evaluation of that provider by an
expert adviser. " -Beth Braverman
6 | planadviser.com September-October 2021
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PLANADVISER - September/October 2021

Table of Contents for the Digital Edition of PLANADVISER - September/October 2021

Masterminds of the Plan
"PLANADVISER’s 2021 Top 100 Retirement Plan Advisers"
How to Optimize Connections
Defining Roles
Building Strategic Partnerships
Different Strokes
Cybersecurity Considerations
Provider Recommendations
PLANADVISER - September/October 2021 - Cover1
PLANADVISER - September/October 2021 - Cover2
PLANADVISER - September/October 2021 - 1
PLANADVISER - September/October 2021 - 2
PLANADVISER - September/October 2021 - 3
PLANADVISER - September/October 2021 - 4
PLANADVISER - September/October 2021 - 5
PLANADVISER - September/October 2021 - 6
PLANADVISER - September/October 2021 - 7
PLANADVISER - September/October 2021 - 8
PLANADVISER - September/October 2021 - 9
PLANADVISER - September/October 2021 - 10
PLANADVISER - September/October 2021 - 11
PLANADVISER - September/October 2021 - 12
PLANADVISER - September/October 2021 - 13
PLANADVISER - September/October 2021 - 14
PLANADVISER - September/October 2021 - 15
PLANADVISER - September/October 2021 - 16
PLANADVISER - September/October 2021 - 17
PLANADVISER - September/October 2021 - Masterminds of the Plan
PLANADVISER - September/October 2021 - 19
PLANADVISER - September/October 2021 - 20
PLANADVISER - September/October 2021 - 21
PLANADVISER - September/October 2021 - "PLANADVISER’s 2021 Top 100 Retirement Plan Advisers"
PLANADVISER - September/October 2021 - 23
PLANADVISER - September/October 2021 - 24
PLANADVISER - September/October 2021 - 25
PLANADVISER - September/October 2021 - 26
PLANADVISER - September/October 2021 - 27
PLANADVISER - September/October 2021 - How to Optimize Connections
PLANADVISER - September/October 2021 - 29
PLANADVISER - September/October 2021 - 30
PLANADVISER - September/October 2021 - 31
PLANADVISER - September/October 2021 - Defining Roles
PLANADVISER - September/October 2021 - 33
PLANADVISER - September/October 2021 - Building Strategic Partnerships
PLANADVISER - September/October 2021 - 35
PLANADVISER - September/October 2021 - Different Strokes
PLANADVISER - September/October 2021 - 37
PLANADVISER - September/October 2021 - Cybersecurity Considerations
PLANADVISER - September/October 2021 - Provider Recommendations
PLANADVISER - September/October 2021 - 40
PLANADVISER - September/October 2021 - Cover3
PLANADVISER - September/October 2021 - Cover4
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