American Funds' platform puts target-date funds under a microscope

Fund giant offering financial advisers a tool for evaluating the funds that adheres to the 2013 guidance from the Department of Labor

Jun 1, 2016 @ 1:50 pm

By Jeff Benjamin

American Funds is offering financial advisers a tool for evaluating target-date funds that adheres to the guidance from the Department of Labor.

The Target Date ProView platform uses Morningstar data to evaluate all 57 target-date fund series.

According to American Funds, the interactive tool is designed to help advisers evaluate target-date funds in line with the DOL's 2013 guidance, including a focus on asset allocation glide path, returns, risks, expenses, as well as manager and fund profiles.

The DOL's 2013 tips for evaluating target-date funds were inspired in part by the growth and popularity of target-date products inside retirement accounts.

According to the Employee Benefit Research Institute, 62% of 401(k) plan participants had target-date funds in 2013. Casey Quirk & Associates projects that by 2019 there will be $3.7 trillion invested in target-date funds, up from $760 billion in 2015. And Cerulli Associates is forecasting that by 2019 88% of new retirement plan contributions will flow into target-date funds.

Rich Lang, vice president of retirement plan series at American Funds, attributes much of the growth in target-date funds to the Pension Protection Act of 2006, which led to the creation of qualified default options in company-sponsored retirement savings plans.

Target-date funds became an easy option for plan sponsors and consultants, he said.

The next step is to take a closer look at the target date options, he added.

“We came out with this tool because we felt there was a need for thoughtful evaluation of target-date funds,” Mr. Lang said. “It's designed to be an objective tool that advisers can use to evaluate the funds in a straight forward way.”

The platform, which is free for financial intermediaries, is set up to default to American Funds, but that feature can be disabled.

As part of the evaluation process, advisers and plan sponsors can compare and contrast the various target-date funds and series.

The message that comes through in the evaluations is that all target-date funds are not created


“There is market risk and there is longevity risk,” Mr. Lang said. “If a fund isn't taking on enough equity risk it might not be helping a participant save enough for retirement.”

The general theme of the DOL's 2013 tips for evaluating target-date funds was to introduce deeper and more frequent due diligence of the funds.

An American Funds' survey of plan sponsors and consultants found that two-thirds of nearly 700 respondents would expect to complete due diligence of the target-date funds in their retirement plans every two years.

But 35% of respondents admitted that the due diligence is less frequent because it “takes too much time” or “is too complex.”

In addition to streamlining the due diligence process on the entire universe of target-date funds, ProView enables advisers to produce personalized reports for their clients that can be customized with to represent the advisory firm.


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