Nearly half of advisors who sell defined contribution plans are pushing for an external manager for target-date funds for those plans.

And that means that record keepers can’t just assume that their own proprietary TDFs will be at the top of the list for participants.

That’s according to new Cogent Reports research from Market Strategies International.

The “Retirement Plan Advisor Trends” report said that 47 percent of advisors selling DC plans are recommending an external manager for TDFs instead of relying on the record keeper’s funds.

In addition, the more plan production rises, the more likely it is that external TDF offerings will be recommended.

Fifty-nine percent of DC specialists who manage $50 million or more in DC assets under management are counseling plan sponsors to go farther than their current plan providers when considering TDFs, and look instead at the funds offered by external asset managers.

More than double the number of advisors, at 41 percent, suggest TDFs than those who recommend any other kind of qualified default investment alternative.

That means TDFs have leapfrogged to the top of the heap.

And maybe that’s not such a bad thing, considering that 401(k) plan service providers tilt toward their own products when setting up plan lineups.

In fact, providers are guilty not only of favoring their own funds over others even when they perform worse than outsiders’ products, but also of keeping those funds in plans despite their poor performance.

And that means that advisors who turn to outside TDFs could be steering plan sponsors in the right direction for participants.

“Full-service plan providers cannot rely on assets simply flowing in because they are the incumbent record keeper,” Sonia Sharigian, senior product manager and report coauthor at Market Strategies, said in a statement.

She added, “Now more than ever, plan providers need to compete with a crowd of other DC investment managers, who will likely to have more opportunity to showcase their target date solutions.”

TDFs are also the second most popular investment options that advisors include in their recommended lineups, after traditional actively managed mutual funds.

Index funds are doing extremely well, too, with almost three quarters (73 percent) of established DC advisors recommending them to clients. That’s up from 64 percent in 2014.

Instant Insights /

Just offering target-date funds not enough for recordkeepers

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