trendspotting | PLANADVISER January/February 2017

Advisers Embrace Custom TDFs

15% make some form of custom recommendation.

By John Manganaro | January/February 2017

Defined contribution (DC) specialist financial advisers managing at least $50 million in DC assets show an increasing inclination toward use of custom target-date funds (TDFs), according to a new analysis published by Cogent Reports.

The analysis shows roughly 15% of advisers in this market segment are recommending some type of customized TDF product for at least some clients. While 38% in this segment still recommend proprietary fund offerings from the plan provider, and 46% recommend TDFs provided by external third-party managers, Cogent suggests this is a clear sign of market evolution toward greater use of customization.

According to the firm, the growing number of advisers who advocate for using an external manager for target-date funds rather than the proprietary offering from the current plan recordkeeper is “further evidence that incumbent recordkeepers must continue to up their game in this increasingly competitive marketplace.”

Across all DC advisory market segments, proprietary TDF offerings established by the plan provider are recommended by 48% of advisers, while target-date funds offered by an external asset manager are recommended by 42%. Much of the remainder, or about 8%, commonly recommend customized TDFs. Full-service plan providers and DC investment managers must understand the specific nuances that exist across plan adviser producers and channels in order to retain and win business.