Advisers Say Sponsors Need Better Eye for Target-Date Funds

Three-fourths of financial advisers polled in a new JPMorgan Funds-sponsored survey said that when evaluating target-date fund options, plan sponsors lack clear and objective criteria for selecting the most appropriate fund.

Seventy-six percent of advisers surveyed said they believe plan sponsors only sometimes, rarely, or never recognize the differences in glide paths among target-date funds, requiring them to spend more time educating plan sponsors on these significant differences, according to a JPMorgan Funds press release. The disclaimer is that JPMorgan unveiled a product in September to help advisers and sponsors choose the right target-date offering (see JPMorgan Announces Target-Date Evaluation Product).

Advisers said plan sponsors’ biggest mistake was “focusing too much on fees and not on other factors that could affect participant outcomes,” followed by “choosing a target-date fund offered by their recordkeeper without considering other options.” (see Target Dates Surge, but Questions Linger). Other key survey findings, according to JP Morgan, include:

  • 76% of advisers said it was extremely or very important to consider strategies that incorporate broad diversification of asset classes;
  • 67% said it was extremely or very important to manage volatility in the five to 10 years prior to retirement;
  • 61% said plan sponsors’ objective was to meet income replacement goals at retirement versus 39% who said plans seek to maximize participants’ lifetime savings.

“Considering the dramatic differences between target-date funds and their status as a critical retirement savings tool, it is clearly important for plan sponsors to understand and consider all criteria when choosing a fund,’ said David Musto, managing director of JPMorgan Funds, in the press release.