Insights from the experts in investment fiduciary responsibility.

Why you need to take target date fund due diligence seriously

Posted by Bennett Aikin on July 31, 2014

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Ever since the Pension Protection Act in 2006 brought about the qualified default investment alternative, the popularity of target date funds has exploded. Just take a look at these stats compiled by Paladin Registry and Target Date Solutions:

  • $800 Billion in TDFs
  • 100,000 plans offering TDFs
  • 20,000,000 participants in TDFs

And why not? They are a better default option than cash for participants who don’t provide direction, and they seemingly solve many of the problems that have traditionally faced both plan participants and plan advisers. Everybody wins, right?

Not exactly. Despite being a great concept, or maybe because they are so great in concept, there has been a tendency to view TDFs as a retirement solution in a box that doesn’t require a tremendous amount of oversight. However, by taking a look under the hood, we can see that similarly marketed products from two different providers can be built vastly different. Therefore, advisors need to treat TDFs as they would any other investment product, and implement a careful due diligence process to make sure they are matching up the right investment with the needs of the plan or participant they are working for.

Read fi360 CEO Blaine Aikin’s most recent Fiduciary Corner column at InvestmentNews for more on why target date funds present problems, how advisors need to treat TDF due diligence, and some of the specific questions you should be asking before making a recommendation. 

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