Investing

Consultants Make Recommendations for Plan Sponsor Fund Lineups

Consultants interviewed by PIMCO weighed in on which target-date strategies are best for which plans, which active strategies are best for which investments, and more.

By PLANADVISER Staff editors@assetinternational.com | April 18, 2017

Retirement plan consultants list reviewing target-date strategies as the top priority for their plan sponsor clients, according to the 11th annual PIMCO Defined Contribution Consulting Support and Trends Survey.

More than three-quarters (77%) of the 69 consultants surveyed said target-date fund reviews are the top priority over the next year for their plan sponsors clients, closely followed by an evaluation of investment fees (73%). The consultants participating in the survey advise more than 12,000 plan sponsors with more than $4 trillion in cumulative defined contribution assets.

Nearly all (97%) of consultants recommend target-date funds as the qualified investment default alternative (QDIA).

The largest percentage of consultants recommend plans with less than $1 billion in assets select a packaged active/passive blend fund when choosing target-date strategies. For larger plans, nearly half of the consultants (48%) recommend custom target-date strategies that enable tailoring of both the glide path and the investment manager line up, while just over one-quarter (27%) recommend packaged active/passive funds even for these mega plans.

Assets in custom target-date strategies continue to grow, with consultants reporting nearly $200 billion in custom target-date assets under management (AUM). At the median, consultants expect an additional 10% of clients to implement these strategies in the next three years.

“Nearly all consultants (98%) recommend that plan sponsors consider a target-date fund’s glide path as the most important factor in evaluating and selecting an investment default strategy,” saysStacy Schaus, executive vice president and author of the survey. “Consultants also note fees as an important consideration, which helps explain broad support for active and passive blend target-date strategies.”

Other consultant recommendations include:

  • The vast majority of consultants view active management as an important or very important investment approach for emerging market equity (94%), non-U.S. bonds (92%), U.S. bonds (88%), infrastructure/MLPs (87%), U.S. small cap equity (82%) and non-U.S. developed market equity (82%);
  • Nearly all consultants (97%) recommend core or core plus fixed income as a stand-alone core investment option, with the majority also supporting a second core bond choice such as a foreign or global fixed income or a multi-sector bond fund;
  • Most consultants (92%) recommend including one inflation-protection option in the core lineup, up from 84% in 2016. The top recommended stand-alone strategies in inflation-protection include inflation-linked bonds/TIPS (66%), multi-real asset strategies (55%) and REITs (50%); and
  • Consultants recommend stable value strategies over all other capital preservation alternatives, with 94% of respondents believing clients are very likely or likely to switch to stable value when seeking an alternative to money market funds.