As the number of target-date funds (TDFs) grows, so does the complexity of analyzing individual funds, comparing them to peers and determining their potential role in clients’ plan lineups. So it’s not surprising that several major firms in the industry have rolled out analytic tools to help advisors drill down into TDFs to examine how the funds rate on key metrics. I recently asked several analytic service providers for high-level details on their tools; the received responses are listed alphabetically below. In a future article I’d like to discuss how advisors are using these services. If you’re willing to share your experience, please contact me ([email protected]).
American Century Target Date BluePrint
TDF universe coverage: Number of funds, percentage of assets, etc.: 44 TDF Series
Data sources: Morningstar and fund prospectuses
What are the key analyses and metrics the service provides?
Creates a customized suitability score based on the DOL’s Tips for ERISA Plan Fiduciaries. For example, based on fiduciary input, it generates a profile of the plan’s demographics and risk preferences. It then ranks which TDF series best fit the plan's profile. It helps you narrow the TDF universe to focus only on those whose investment profiles align with a plan’s demographics, risk profile and preferences. The output also provides fiduciaries with important documentation for their records:
- The plan’s objective
- The plan’s demographic and risk profile
- Guidance for how to adhere to full range of recommendations included in the DOL tips
- Acknowledgement that the fiduciary has considered all relevant information
What tools does the service provide for advisors to use with plans? Target-Date Blueprint
What does the service cost? No cost.
Number of advisor-users: Over 400
Nuveen MPI Target Date-Fund Radar
TDF universe coverage: Number of funds, percentage of assets, etc.: As of May 28, 2021), MPI (Markov Processes International) Target Date Fund Radar that Nuveen offers to advisors covers 147 unique TDF series across both mutual funds and collective investment trusts (CITs).
Data sources: Morningstar is the primary source for the underlying fund data. That said, TDF Radar includes three unique data elements:
- Morningstar data – Used for fund returns and qualitative fields like category, expense ratio, etc.
- MPI Assignments such as whether a series is open or proprietary, active or passive, etc.
- Calculated Data – MPI uses its proprietary Dynamic Style Module (“DSA”) to create a returns-based glide path. We feel this provides an apples-to-apples comparison versus manager-stated values, more accurately reflects the effective equity allocations for funds that use derivatives, futures, etc. and delivers deeper insights than basic equity allocation.
What are the key analyses and metrics the service provides?
TDF Radar allows advisors/consultants to work with plan sponsors to identify the TDF products that are deemed to be most suitable for the plan based on a variety of demographic information, investment preferences and risk considerations. In addition, it provides a framework for advisors to analyze and compare various TDF options – especially in glide path shape and characteristics. Finally, users can produce comprehensive reports that compare various TDF series and document the suitability process. For asset managers, it provides a scalable solution that helps the distribution teams compare their TDF funds to competitors.
What tools does the service provide for advisors to use with plans? Investment menu plan reviews and fund scorecards, TDF Suitability Analysis & monitoring, fund comparisons and portfolio analysis.
Service cost: Nuveen covers the cost of this service and provides it free of charge to advisors. Advisors can also work directly with MPI to obtain their own subscription to the service.
Number of advisor-users: Nuveen has more than 1,000 advisors that utilize this service.
Putnam Investments TargetDateVisualizer
TDF universe coverage: Number of funds, percentage of assets, etc.: Over 100 different strategies
Data sources: Morningstar and MPI
What are the key analyses and metrics the service provides?
TargetDateVisualizer frames how much equity sensitivity a target-date vintage has at critical points along the glide path. Subsequently, it plots funds most aligned with the user’s risk-tolerance, resulting in a focused set of options that can be compared head-to-head based on performance and other important risk factors. The final output provides detailed analysis that enables advisors to document the review and selection process for their clients.
What are your service's distinguishing features (analyses, reports, etc.)?
It starts with analyzing target-date managers based on what they do at the beginning and end of the glide path. We separate the universe of target-date funds, which we've narrowed down to over 100 managers with at least a three-year track record, into a subset of managers who share a philosophy that matches the plan’s objectives. TargetDateVisualizer helps identify preferred target-date strategies based on how aggressive or conservative an advisor would like to be in the early and late stages of participants’ working lives and how they define success overall.
What tools does the service provide for advisors to use with plans?
TargetDateVisualizer focuses on having a diligent and prudent, yet simple, process at the front end. Start by narrowing the universe down and documenting the risk and performance metrics on that subset of managers. At the end of the exercise, provide that information in a form that walks you through the beginning of the process right through the end so that you have documentation of how you came to the target-date manager that you chose for your plan.
Service cost: No cost to users.
Number of advisor-users: Soft launch early last year with about 150 advisor-users with a full launch in May 2021.