Products March 5, 2013

MPI Unveils TDF Analysis Tool

Target Date Fund Analytics (TDF Analytics) was released by Markov Processes International (MPI) for plan sponsors, their advisers and for providers of an increasingly used product.
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TDF Analytics, which includes a distinctive Glide Path Analysis, was built for fund family research, investment selection, risk monitoring, fund replacement and reporting.

The tool was introduced at the National Association of Plan Advisors/American Association of Pension Professionals and Actuaries’ (NAPA/ASPPA) Conference in Las Vegas.

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At a session with representatives from T. Rowe Price, PIMCO and American Century entitled “Next Generation Target Date Analysis,” the discussion focused on peer group comparison for analysis of TDFs, as well as risk and market expectations.

In response to the moderator’s question about how TDF providers can use traditional performance benchmarking in fund performance analysis, Jerome Clark, a portfolio manager at T. Rowe Price Group Inc., mentioned three factors: peer category comparison; custom benchmarks for each asset class in a vintage, such as the Russell 3000 for equities; and third-party provided benchmarks. Jeff Elvander, chief investment officer of the Retirement Plan Advisory Group, moderated the panel.

According to MPI, plan sponsors and their advisers were frustrated at the limited availability of solutions to clearly assess and visualize the risk and return of target-date funds (TDFs) against their peers, as well as a general lack of best practices around measuring the asset-allocation mix.

TDF Analytics were developed to meet the needs of practitioners who analyze TDFs by measuring funds against a target-date peer group, while minimizing manual processes. MPI’s Glide Path Analysis uses current asset-allocation holdings data, rather than the hypothetical equity exposure levels that appear in many TDF product prospectuses and fact sheets to detail the projected glide path.

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With reporting capabilities that better visualize the investment narrative against peers, including the “Current vs. Proposed” reporting functionality, TDF Analytics can clarify, for investment professionals,TDF behavior compared to the complete range of options on the market. Additionally, asset managers can utilize the tool to better position their products against the universe.

“With nearly a half trillion dollars in AUM [assets under management] and continued annual growth of 30%, as well as new products being introduced at a rapid pace, the prevalence of target date and target risk offerings show no signs of abating,” said Jeff Schwartz, managing director of MPI. “It is crucial for sponsors, their advisers and asset managers themselves to make sense of an often confusing and increasingly saturated space. The need for utilizing the right performance and risk measures when assessing TDFs – and especially the ability to view products against the vast peer group – is essential to making appropriate investment decisions and allocations. With stark variations in glide path stability, performance and risk between fund families and within providers’ own offerings, we felt it was necessary to evolve the way these offerings are evaluated.”

Embedded into Stylus Web, MPI’s scalable Web-based fund manager research and reporting tool, and Stylus Pro, an MPI product used in the wealth and investment management industry, TDF Analytics were developed in close coordination with clients long-involved in TDF investing.

More information on TDF Analytics is here.

Data & Research March 4, 2013

Participants Still Lack Fee Knowledge

A survey indicates the recently mandated retirement plan fee disclosure notices did little to increase participants’ knowledge.
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LIMRA Retirement Research surveyed defined contribution (DC) plan participants before and after they received information about their plans’ fees and expenses to determine how effective the disclosure statements were and how participants would react.  Prior to receiving disclosure notices, 50% of participants said they did not know how much they paid in fees and expenses; the same portion did not know subsequent to receiving the notices.  

Alison Salka, corporate vice president and director of LIMRA, noted that 22% of participants surveyed believed they did not pay fees and expenses after receiving disclosure notices, compared with 38% prior to disclosures going out. 

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The study found many participants overestimated the amount of fees and expenses they pay in their DC plans. Forty-two percent of participants believe they pay 10% or more—with more than one-quarter of participants believing they pay 25% or more in fees and expenses.  

On average, DC plan fees and expenses range between 1% and 2%, depending on the size of the plan and the participants’ allocation choices, LIMRA noted. The survey found less than one in three participants who thought they knew how much they paid and estimated their fees and expenses to be less than 2%.  

Seven in 10 participants who said they knew they paid fees and expenses believed those fees and expenses to be reasonable, similar to what LIMRA found in its survey prior to the disclosure notices being sent.

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