FRC Issues Report on TDF Trends

Retirement plan sponsors are selecting only specific parts of a target-date fund series, even though asset managers market the entire target-date fund series, according to a report from Financial Research Corporation (FRC) and Brightscope. 

In the report, “Trends in Target-Date Portfolios on Recordkeeper Platforms,” FRC makes the argument that this trend will have broader implications for the target-date market, as it suggests that certain asset managers will face demand hurdles for their target-date funds that were previously unexpected.

FRC examined the asset composition of target-date funds in 50,000 401(k) plans, representing 90% of all 401(k) plan assets. It also assessed how recordkeepers and plan sponsors use target-date products and reviewed product distribution trends.

Based on its findings, FRC offers actionable recommendations for firms seeking to grow their target-date product lines in the report.  FRC and Brightscope say that the analysis of how target-date funds are distributed by recordkeepers should assist industry observers and research consultants to better understand and assess the 401(k) platform segment, as well as help manufacturers position their product on recordkeeper platforms.

“To illustrate this trend, BrightScope data reveals that in one retirement plan, only five out of 12 funds in a target-date series were selected by the plan sponsor. When this trend plays out in the broader marketplace, it leads to varying asset levels across target-date categories. As seen in FRC’s data, 70% of target-date mutual fund assets are held in the five most popular fund categories: 2020, 2030, 2025, 2015, and 2040,” said Lynette DeWitt, author of the report. “We’ve known already that a few fund categories hold the largest assets, and now we understand why. We anticipate that the less popular funds in a series will remain open to maturity now, but target-date series in the future will be comprised of fewer funds.”

The report can be purchased through the FRC sales department by calling 866-532-8009.