Next Generation of Asset-Allocation Strategies

Bringing custom asset-allocation strategies to retirement plans
Tina Wilson

Although defined contribution (DC) plan assets have largely flowed to target-date funds (TDFs) in recent years, many advisers prefer customized solutions for their retirement plan clients and have begun looking for accessible solutions for their mid-size plan sponsor clients, generally those with $15 million in assets under management (AUM) or more. Seeing demand for strategies that offer customized glidepaths at a lower cost than a fully managed account product, while still providing opportunity for advisers to retain their critical value to sponsors, forward-thinking providers such as MassMutual are beginning to broaden their offerings. Alison Cooke Mintzer, editor-in-chief of PLANADVISER, talked to Tina Wilson, vice president and head of product development and research for MassMutual’s Retirement Services Division, about innovation in the development of asset-allocation strategies and how advisers can use these strategies to build their businesses.

PA: What trends are you seeing in the marketplace around asset allocation?

Wilson: We have seen a lot of interest, especially from advisers, in asset-allocation solutions that offer customization, specifically the ability to use funds that you can’t use typically in a target-date fund, such as the ability to add stable value products and alternative investments. As we strive to ensure plans have the information, the plan design, the tools and the investments that participants need to be retirement ready, we are encouraging advisers to take a closer look at their retirement plan clients and their plan demographics: whether a company has a defined benefit (DB) plan, whether participants are invested in company stock, the age of the participant population and other factors.

We also continue to see the critical role of the adviser in the due diligence and benchmarking of the retirement plan, and see advisers’ need for solutions that complement their businesses and offer growth opportunities for their practices.

PA: Tell me about the managed allocations product you recently released.

Wilson: In recognition of the need we are seeing in the marketplace, we’ve just introduced MassMutual Managed AllocationsSM, powered by BlackRock®, which offers the convenience of prepackaged target-date funds whereby participants select an investment based on when they plan to begin withdrawal of funds for retirement. This product allows for customization of a target-date strategy based on the funds available in the DC plan. The strategy uses the plan’s existing investment options—selected either through the plan’s adviser or its fiduciary—in such a way where then BlackRock serves as an ERISA 3(38) fiduciary* to the glidepath to give the plan, and ultimately its participants, a custom target-date suite. For this service, participants are charged an annual fee. There are three versions of this glidepath, and the choice is recommended by the plan’s adviser: a more conservative, a moderate and a more aggressive version. We have materials to help the adviser and the plan fiduciary determine which might be the most suitable for them based on plan demographics.

All MassMutual Managed AllocationsSM, powered by BlackRock®, have a “to“ glidepath, meaning all of them become their most conservative as the strategy reaches the target retirement date.

PA: MassMutual already offers both packaged TDF solutions and custom products. Why add this to the mix?

Wilson: We increasingly saw advisers who wanted to participate in the custom allocation program for a plan’s target-date or qualified default investment alternative (QDIA) solution, but because of either their own fiduciary constraints or their firms’ constraints, they couldn’t. They were limited to packaged target-date funds, which are appropriate for many plans, but some advisers and plan sponsors would prefer to have and would be better served by a customized asset allocation model.

For the last six years, we’ve had complete custom capabilities for advisers, and we call that program CustomChoice StrategiesSM. We needed something that allowed non-fiduciary advisers to participate as well. This solution highlights the value of the adviser, but ultimately gives the plan and its participants a target-date strategy based on the funds that plan fiduciaries have already selected and on which they perform due diligence regularly.