Key Takeaways
- • Capital Group's survey of 15 DC investment consultants, released May 13, found the top focus areas over the next 12 months are revising or adding retirement income options, implementing target-date series "deep dives," and improving participant outcomes.
- • 79% of consultants surveyed said they are reviewing or evaluating retirement income options, a shift reflecting the need to solve for decumulation of workplace retirement plan assets.
- • 98% of consultants have a target-date series as the QDIA for participants, but 64% are evaluating those options with a focus on the decumulation phase.
- • 64% of consultants recommend a hybrid default TDF approach combining active and passive funds, while no consultant chose active-only; 86% advocate offering retirement income options in plan lineups.
- • 94% of consultants use off-the-shelf target-date funds, and only 36% expect customized TDFs to increase in use over time.
Summary
Defined contribution investment consultants are concentrating on three areas tied to the decumulation of assets by workplace retirement plan participants, according to research from Capital Group and client analytics director Chris Anast. The findings come from a survey released May 13 of 15 DC investment consultants, conducted online from October to December 2023, with institutional assets under advisement ranging from $7 billion to $2.9 trillion.
The top focus area, cited by 79% of respondents, is reviewing existing retirement income options or evaluating new ones. Anast described this as a shift over the past 15 years as consultants work through a "flood of products in the market." He noted the evaluation is complex, citing gaps in existing products and services, a perceived lack of portability, and fees. Current target-date funds and qualified deferred alternative investment options ranked next at 64%, alongside a focus on participant outcomes. Nearly all consultants (98%) use a target-date series as the QDIA, but evaluation is increasingly centered on the decumulation phase. Anast said recordkeepers may need to be prepared to offer decumulation, and that it is "very challenging for participants to understand it."
Other priorities include the voluntary provisions of the SECURE 2.0 Act of 2022 (50%), recordkeeper evaluation (50%), participant engagement and demographic analysis (36% each), and cybersecurity (29%). Most consultants (64%) recommend 10 to 14 investment options for DC plans, typically mutual funds and collective investment trusts. Eighty-six percent advocate retirement income options in plan lineups, with half preferring both flexible and insurance-backed solutions. Anast said adoption is slow, with many solutions untested and few plan sponsors willing to be first movers. Litigation concerns influence decisions: 86% of consultants make decisions frequently or sometimes based on legal concerns.
For default TDFs, 64% of consultants recommend a hybrid of active and passive funds and none chose active-only. Anast said this points to a disconnect with plan sponsors, 21% of whom reported implementing active management in a separate survey. Capital Group owns American Funds, which focuses on actively managed funds. Consultants largely favor off-the-shelf TDFs (94%), with 64% also offering custom-date TDFs. Half expect customized TDFs to stay the same or decline, and only 36% expect growth. Anast suggested managed accounts could grow, but only if fees prove worthwhile for participants.
The top focus area, cited by 79% of respondents, is reviewing existing retirement income options or evaluating new ones. Anast described this as a shift over the past 15 years as consultants work through a "flood of products in the market." He noted the evaluation is complex, citing gaps in existing products and services, a perceived lack of portability, and fees. Current target-date funds and qualified deferred alternative investment options ranked next at 64%, alongside a focus on participant outcomes. Nearly all consultants (98%) use a target-date series as the QDIA, but evaluation is increasingly centered on the decumulation phase. Anast said recordkeepers may need to be prepared to offer decumulation, and that it is "very challenging for participants to understand it."
Other priorities include the voluntary provisions of the SECURE 2.0 Act of 2022 (50%), recordkeeper evaluation (50%), participant engagement and demographic analysis (36% each), and cybersecurity (29%). Most consultants (64%) recommend 10 to 14 investment options for DC plans, typically mutual funds and collective investment trusts. Eighty-six percent advocate retirement income options in plan lineups, with half preferring both flexible and insurance-backed solutions. Anast said adoption is slow, with many solutions untested and few plan sponsors willing to be first movers. Litigation concerns influence decisions: 86% of consultants make decisions frequently or sometimes based on legal concerns.
For default TDFs, 64% of consultants recommend a hybrid of active and passive funds and none chose active-only. Anast said this points to a disconnect with plan sponsors, 21% of whom reported implementing active management in a separate survey. Capital Group owns American Funds, which focuses on actively managed funds. Consultants largely favor off-the-shelf TDFs (94%), with 64% also offering custom-date TDFs. Half expect customized TDFs to stay the same or decline, and only 36% expect growth. Anast suggested managed accounts could grow, but only if fees prove worthwhile for participants.
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