Retirement income solutions to grow in TDF space

As one of the most substantial drivers in the entire retirement industry, insiders have certainly taken notice of the massive growth of target date funds. But where will these relatively new products head in the future, and how will product innovation adapt to a coming decumulation wave of retiring boomers?

At Monday's FRA DCIO Market conference in Boston, insiders offered their vision of the changes they expect to see in the not-so-distant road ahead, especially with more migration from mutual funds.

"Fidelity, Vanguard and T. Rowe Price continue to be the big three in the business, but that's flat, and we're going to see smaller companies growing," said moderator Jeri Savage, director of DC research for Rocaton Investment Advisors, LLC. "More and more, you'll see those companies creating solutions with better and newer asset classes and more options."

"Most of my clients are having active discussions about TDFs, and I think we're going to see better built-in income solutions," noted David L. Eisenberg, U.S. segment leader of Mercer's Wealth Management division. "There's been a lot of talk about them, but people are very cautious about pulling the trigger and actually offering them. I also expect to see a lot of downward pressure on the capital market space."

Future growth, Eisenberg predicts, will be generated by more directly approaching participants with the full story of TDFs' benefits as a comprehensive retirement planning tool - though getting participants to do anything at all is an equally big step, he admits.

"Uptake has been very slow, and that makes you wonder if maybe it's the tool itself," he notes. "What will be the catalyst to help make that push?"

Happily, Eisenberg said he's also starting to see more sophisticated participants who understand the values provided by target date fund sets, though the solution is far from a one-size-fits-all for pre-retirees.

"I think we're also going to see a drive for access to alpha and much more use of alternative investments," added Kenneth Grant, head of corporate development for Northeast Retirement Services Inc. and Global Trust Company. "Consulting firms are going to be looking more closely at that mix, maybe even in concert with residual DB plans, and more carefully calibrating their exposure to each industry represented."

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