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Part 5: Evaluating TDFs based on suitability

Performance is the second-most commonly cited top concern by plan advisors when it comes to evaluating TDFs.
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There is no doubt that performance is important in any investment decision. TDFs are no exception, and performance is the second-most commonly cited top concern by plan advisors when it comes to evaluating TDFs. In keeping with the general tendency toward a goals-based approach identified earlier, however, it is noteworthy that advisors most commonly evaluate TDF performance relative to peer groups (40%) and not based on outperformance of a benchmark, whether an industry index (21%) or a custom benchmark (16%).

And yet, despite the importance of performance, suitability is the top concern among plan advisors who are evaluating TDFs. This is in keeping with many other survey findings, including the fact that many plan advisors discount their own preferences when dealing with TDFs, in favor of what is appropriate based on client preferences or objectives. In addition to the preferences surrounding glide path types mentioned earlier, plan advisors were most likely to reply “it depends” when asked about passive versus active (27%) or open versus closed architecture (46%). Of those advisors who did state a preference beyond deferring to participants’ needs, more advisors stated preferences for a mix of active and passive strategies in a TDF, versus one or the other, as well as a preference for open versus closed architecture funds.

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