Reverse the search: An alternative approach to defined contribution recordkeeper and target date fund manager searches
Advisors can take different paths to reach search objectives. Alternative options may be worth considering.
When defined contribution (DC) advisors conduct a search for a new retirement plan, they typically have three goals in mind:
- Finding the best recordkeeper at the most efficient price
- Identifying the most appropriate QDIA1, which is often a target date fund (TDF)
- Ensuring the consistency of recordkeeping fees
A conventional approach separates the search into two phases: first, choose the recordkeeper. Then, choose a QDIA solution. An alternative is to reverse the order of the search. By that we mean selecting the TDF provider first and the most appropriate recordkeeper second. A different order doesn’t have to change the essential element of any retirement plan search: DC advisors who act as fiduciaries must follow a prudent process when helping plan sponsors. Their objective is to help clients choose a strong plan that meets their goals.
Reversing the search can offer advisors an opportunity to maintain a prudent plan selection while taking full advantage of potential discounts coming from their plan’s target date fund choice.
Case study: How a plan sponsor could have benefited from selecting a TDF manager first
A DC advisor recently conducted a 401(k) search for a client with $15 million in plan assets and 175 active participants.
1 A plan’s qualified default investment alternative (QDIA), which may be a target date fund (TDF) based on participants’ date of birth, is the fund to which all participants’ assets are automatically moved during a reenrollment, unless the participant makes a new investment election during a specified time period.
2 R6 shares are offered at net asset value (NAV), with no front-end sales charges (CDSC) or 12b-1 fees.
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TARGET DATE FUNDS: The JPMorgan SmartRetirement Funds are target date funds with the target date being the approximate date when investors plan to retire. Generally, the asset allocation of each Fund will change on an annual basis with the asset allocation becoming more conservative as the Fund nears the target retirement date. The principal value of the Fund(s) is not guaranteed at any time, including at the target date.
Certain recordkeeping and administrative services for plans may be provided on behalf of JPMorgan Invest Holdings LLC (J.P. Morgan) by Empower Retirement, LLC (Empower Retirement). Securities transactions are effected by an affiliate of Empower Retirement: GWFS Equities, Inc. (GWFS), a registered broker-dealer and member of FINRA. Representatives of GWFS are not registered investment advisors and cannot offer financial, legal or tax advice. GWFS and Empower Retirement are independent entities and are not affiliated with J.P. Morgan. If retirement brokerages services are available in the Plan, those services are offered by Charles Schwab & Co, Inc. (Schwab). Schwab receives fees for providing these services and is not affiliated with J.P. Morgan, Empower Retirement or GWFS.
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