Personalization Takes Front Seat in Investment Menu Trends

While private markets and other emerging investment offerings continue to generate retirement industry buzz, industry experts say plan committees are increasingly focused on helping participants achieve better outcomes through personalization and education.

Advisers often serve as interpreters for participants, translating the ins and outs of complex products.

“We usually see the industry trying to push a solution, and then it’s up to the adviser to determine whether or not it adds value,” says Brian Hanna, president of retirement plan services at and a partner in Everhart Advisors. “To be honest, filtering noise is really what the client would look for [from an adviser].”

Industry product rollouts show private markets and guaranteed income solutions as the growing trend for defined contribution investment lineups, but Hanna says the real trend is increased personalization in selections of qualified default investment alternatives, the default investments utilized when participants are automatically enrolled in a retirement plan and do not select their own investments. QDIAs are diversified, professionally managed investment options, such as target-date funds, balanced funds and managed accounts.

“I equate that [customization] with the evolution of the QDIA,” says Hanna. “It’s not an immediate jump to manage the accounts, but, certainly, we’re trying to find what is economically viable for personalization at scale.”

Advisers say the this broader emphasis on participant outcomes is reshaping investment committee discussions. Rather than evaluating investment options solely on performance or cost, committees are increasingly considering how plan design, financial wellness programs and personalized investment solutions work together.

Quieting the Noise

Despite consistent industry discussion of private markets, of retirement income products and of new investment sectors such as artificial intelligence, most advisers say adoption of these trends remains low in DC plans.

“While sponsors recognize the potential for diversification and access to investment opportunities beyond the public markets, many continue to proceed cautiously, given the additional fiduciary, operational and participant-communication considerations associated with these asset classes,” wrote Laurie Lombardo, head of retirement product at Voya Financial Inc., in an email to PLANADVISER.

This hesitancy is echoed by Mike Welker, head of Mariner Institutional at Mariner Wealth Advisors LLC.

“[Sponsors] remain very, very cautious and maybe not yet convinced that the potential benefits of the private markets outweigh the added complexity,” Welker says.

From Hanna’s experience, “anecdotally, 1 in 25 clients—maybe 1 in 50,” bring up or ask about private markets in his meetings. “These are not the issues that most employers have concerns about in the industry.”

Recent mega-sized initial public offerings of artificial intelligence companies may be concerning to employers trying to anticipate how they will affect market dynamics and their own investments.

“Committees may talk about [mega-IPOs],” says Welker. “To try to get access to IPOs that sometimes get extraordinarily hot for a period of 30 days and then they come back down to the offer price and maybe lower, I just think that that gets very specific, and … committees should be thinking a little bit broader.”

Experts emphasize that advisers recognize that investing hot topics and news headlines have the potential to arise in meetings, and they have to act as a mediator for the “noise.”

“Try to filter all that is happening down into actionable steps,” Hanna says. “With income and private markets, primarily focus on removing the noise, helping [participants] understand what is the decision really at hand, if there even is one. … There aren’t many solutions around private markets for them to be this big trend in DC plans yet.”

Thinking Beyond Fund Lineups

Advisers say DC plan committees have largely shifted their focus to a holistic image of how their plans operate, rather than considering investments in isolation or assessing recordkeeping fees.

“There’s been a broader shift into thinking about the menu, plan design, participant support, wellness [and] how all that works together to improve the outcomes of our individuals or the people,” Welker says.

According to Welker, the shift has been driven in part by employers’ concerns that participants lack a strong understanding of financial concepts.

“Financial literacy is something that [participants] don’t understand,” Welker says. “Sometimes you’d have, without proper education, somebody investing 25% of four different investments in the large-cap area and thinking they’re diversified and just not truly understanding the retirement offering,” Welker says.

Participants are also increasingly asking for help from their sponsors and advisers, according to Lombardo.

“In response, plan sponsors are focused on delivering solutions that can improve participant outcomes, while reducing complexity and making it easier for individuals to take appropriate action,” Lombardo wrote. “These objectives are often addressed through guidance tools and investment solutions that are tailored to the individual participant.”

For advisers, the starting point needs to come not from the product, but from the problem that needs solving.

“Don’t start with a product and say, ‘Here’s a target-date fund that has alternatives.’ Let’s talk [about]: How do we use that?” Welker says. “Once you understand what needs to be solved, then you can go out and you can try to find the solution or the service to meet that.”

Vessels for Personalization

Among the vessels available to personalize outcomes for participants, target-date funds remain dominant within many DC plans because they provide participants with a professionally managed portfolio that automatically adjusts over time.

“Target-date funds have a lot of money flow into them because I think they’re simple, they’re easy to understand,” Welker says. “That’s why you’re seeing that area grow so much.”

Target-date funds also frequently serve as QDIAs, allowing participants who do not actively select investments to receive a diversified allocation designed for their expected retirement date.

At the same time, advisers say managed accounts are drawing renewed interest because they can tailor investment recommendations based on a wider range of participant data such as age, savings rate, account balance and retirement goals.

Experts say the growing adoption of both solutions reflects committees’ increasing focus on matching investment strategies with individual participant needs.

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