Hats off for addressing tough issues on an important topic in the article "Fiduciaries tackle target date funds” (InvestmentNews, March 3).
One of those important areas is demographics. The article quotes Marcia Wagner, an Employee Retirement Income Act of 1974 attorney at The Wagner Law Group, as follows: “Initial TDF selection criteria must take plan demographics into account.”
Those include age distribution, risk tolerance, income levels and anticipated investment decisions upon reaching the retirement date, according to the article.
This is a pretty tall fiduciary order, especially for a company with a diverse group of employees.
A one-size-fits-all demographic for a diverse group is, I guess, an average: average age, average risk tolerance (very tough), average income, average anticipated retirement decision (even tougher than risk tolerance). And then, of course, there is the matter of tying a glide path to this demographic.
Albert Einstein's advice should be taken in this situation: “Everything should be as simple as possible and no simpler.”
The simple fact is that the only demographic that matters to target date funds is the financial sophistication of those who are defaulted into them.
A reasonable assumption is that participants in target date funds are unsophisticated because sophisticated employees don't default their investment decisions to their employers.
Most assets in target date funds are there by default. They are chosen by employers on behalf of financially unsophisticated employees.
The appropriate glide path for the unsophisticated is safety first, especially at the target date. If 2008 taught us anything, it is that participants think that their savings are being protected even when they are in default.
The fact is that they aren't being protected, so 2008 will repeat, unfortunately.
Ms. Wagner is in good company in citing demographics.
The Department of Labor cites it too, as well as “to” versus “through.”
There are many such distinctions without a difference in target date funds. It would help a lot if regulators understood better.
San Clemente, Calif.
Fee debate ignores upside in value from advisers
I read the editorial "Let the sunlight shine on fee disclosure" (InvestmentNews, March 3).
It is bewildering to me that the Securities and Exchange Commission and so many others are interested in highlighting the impact that a 1% fee would have on an investor's portfolio, without also recognizing the upside value that should come from the advice of a skilled financial adviser.
What if, for that 1% fee, the client's net upside was 1% greater than what they could do on their own? And what about the fact that the investor is less likely to buy high and sell low, have an investment policy statement, know how to choose low-cost investments, be able to sift through myriad data to find good managers with proven track records or be inclined to chase returns?
As an adviser, it is frustrating to hear about the impact that fees have, when the real impact is far greater, and often far better, by paying a fee to work with a professional adviser.
Nathaniel J. Tilton
Principal and private wealth adviser
Tilton Wealth Management