Reverse the search: An alternative approach to defined contribution recordkeeper and target date fund manager searches - J.P. Morgan Asset Management
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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.

* Pricing was expressed in basis points of required revenue

What brought the pricing down in the reversed scenario?

Provider C is also the TDF investment manager that was selected by the advisor for the plan and applies the fees it receives from investments toward plan recordkeeping and administration. Provider C’s total plan cost would have been $48,000 less per year than Provider A’s, provided that the plan sponsor uses Provider C’s target date fund. Choosing to reverse the search has a significant impact over 10 years as seen below.

Cumulative total plan cost by provider over time

Source: J.P. Morgan pricing, as of 4/3/17.

Ensuring the consistency of recordkeeping fees

If an advisor chooses a TDF and recordkeeper from the same provider, they may want to consider the conditions that would trigger a re-pricing of the plan. For instance, what happens if the advisor switches out the target date fund because it underperforms the investment policy statement?

Advisors should read the fine print in the services agreement and ensure their client is prepared for all contingencies.

Conclusion: Reversed search and prudent plan selection

When conducting DC recordkeeping and investment searches, advisors are looking to accomplish several goals: to minimize plan costs, ensure recordkeeping fees are consistent, and above all, help plan sponsors meet participants’ retirement savings goals by selecting the most appropriate TDF. 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.

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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.


This material is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.

TARGET DATE FUNDS. Target date funds are funds with the target date being the approximate date when investors plan to start withdrawing their money. 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 FASCore, LLC (FASCore).

J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co., and its affiliates worldwide.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

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