How ‘Nimbler’ Investment Menus, Benchmarking Tackle Complexity

Most of the flows into retirement plans are being directed to target-date funds, and collective investment trusts have overtaken mutual funds as the vehicle holding the most retirement plan assets. However, the average defined contribution plan still has 26.4 investment options, according to the 2026 PLANSPONSOR DC Plan Benchmarking Report, making evaluation an ongoing need. (PLANSPONSOR, like PLANADVISER, is owned by ISS STOXX.)

Advisers and plan fiduciaries increasingly have access to more data, benchmarking tools and outsourced investment expertise than ever before, while navigating new levels of complexity being implemented within target-date funds, managed accounts and alternative investments.

Matt Golda, the chief product officer of Fiduciary Decisions Inc., a financial services technology and data analytics company, spoke with PLANADVISER about the evolution of investment menus and benchmarking. The following interview has been edited for clarity.

PLANADVISER: How have investment menu reviews and benchmarking processes changed in recent years?

MATT GOLDA: While some things change, some things stay the same—and this is true of investment menu review and benchmarking. At the core of what remains constant are people, process, performance and fees. These stay at the center of any evaluation, whether for selection or ongoing monitoring.

It is also important to note that investment policy statements—which define the process plan committees and their advisers use to provide fiduciary oversight when reviewing or benchmarking a lineup—are stable, and they act as a governor that limits the degree of transformation that can occur.

The processes themselves, however, are, in practice, starting to change. They are becoming both nimbler—through automation and the use of data APIs—and more precise, applying more refined data-set comparisons that seek added signal and less noise.

PLANADVISER: What trends are you seeing in how plan sponsors and fiduciaries approach investment menu reviews and benchmarking today?

GOLDA: I think there are three things at play here.

First, outsourcing. There has been tremendous growth in the adoption of pooled employer plans for startup plans, which brings outsourced investment oversight along with it. The [pooled employer plan] trend is showing signs of moving into established and increasingly larger plans. In addition, many plans use their advisers to provide outsourced fiduciary support in a 3(38) [investment manager] capacity. In both cases, fiduciaries are asking the expert to do the work of identifying and implementing lineup review and benchmarking processes.

Second, peer and plan-persona comparisons. While it is key to evaluate how your lineup stacks up against its policy statement—which includes expected diversification, performance and cost benchmarks—assessing your lineup against what others are doing is even more popular today than it has been in the past. We see two buckets. First, how do we compare to plans like ours, similar in size or industry? Second, comparing our approach to those used by the largest plans in America (i.e., the “smart money”) to see whether clients would benefit from some of the same ideas being deployed there. The context of others can affirm a plan’s approach or suggest options for improvement.

Third, participant-outcomes alignment. Reviewing and benchmarking lineups are about more than policy compliance, fiduciary protection and checklists. It is about whether the investment program (both auto-diversified and core options), together with plan design and service-provider involvement (recordkeeper, third-party administrator and adviser), drives the best participant outcomes. This triangulation is increasingly becoming part of the lineup review and benchmarking conversation.

PLANADVISER: How are the increased impacts of artificial intelligence and market volatility impacting investment menus?

GOLDA: I think AI has raised the bar. There is a lot of data out there, and now, with AI, there is no excuse not to consume and process all of it. As an industry, we are less limited by human capital, and that raises the bar for us to improve client outcomes.

Current marketplace investment solutions are also creating the need for greater precision. A case in point is target-date funds. Each [fund suite] has many dimensions—glide path, composition and strategy (active, index or blend)—that can influence the lagging indicators of performance and fees relative to benchmarks.

Selecting or building a custom yardstick to precisely assess the actual versus expected outcomes of an investment is becoming increasingly important. With AI’s help, we may now have the time and energy to focus more on the things that improve committee decision-making, rather than the rote activities of checking boxes and sending out quarterly due diligence questionnaires.

PLANADVISER: As alternative assets get more attention, how are they entering investment menus?

GOLDA: The fundamental question is where these investments should live, and I think there is consensus that they belong in professionally managed solutions—like target-date funds and managed accounts—rather than as standalone choices. It will be interesting to see whether these alternatives sleeves are included in such options on an elective basis at the product level, or whether they ultimately become ubiquitous across all solutions. Under any scenario, I think the inclusion of alternatives will require improvements to the processes used to benchmark performance and fees, to ensure an apples-to-apples comparison.

More on this topic:

	Personalization Takes Front Seat in Investment Menu Trends
	Rethinking Diversification in an Interconnected Global Market