Fidelity Investments is discussing adding non-proprietary target date funds to its adviser-sold 401(k) platform. The discussions come amid rising concerns in Congress and at the Labor Department about the potential for conflicts of interest when target date fund managers offer only their own funds to 401(k) plans.
The company is discussing adding third-party target date funds to its adviser-sold 401(k) platform in response to requests from advisers, said Rich Linton, executive vice president of
Fidelity Investments Institutional Services. “We are not seeing tremendous demand, but we take any request we get seriously,” Mr. Linton said.
The firm expects to make a decision about offering outside target date funds by the end of the second quarter. “We are deciding which fund families would fit well, and balance that with what we already offer,” Mr. Linton said.
If Fidelity does open its platform to outside target date funds, it would be a huge win for advisers, said Ryan Alfred, co-founder and president of BrightScope Inc., a 401(k) ratings and analytics firm. “Advisers have been up in arms about this,” Mr. Alfred said. “They go through a due diligence process for their 401(k) plan clients, and they want choice to provide the best target date fund option.”
Experts also believe that Fidelity's discussions are timely given the Labor Department's plan to issue guidance on how pension funds and advisers can use target date offerings. For example, the Labor Department could come out with guidance saying that 401(k) plans should offer so-called retirement date funds — target date funds that investors intend to redeem during retirement.
Many funds, including Fidelity's target date funds, assume that an investor will not liquidate such assets during retirement. “It's very smart that Fidelity is discussing this,” Mr. Alfred said. “I think this is the direction that the marketplace has to go.”
In October, the Senate Special Committee on Aging held hearings examining the potential for conflicts of interest within proprietary target date funds. This month, the committee's chairman, Sen. Herb Kohl, D-Wis., announced he is working on legislation to require target date fund managers to take on fiduciary responsibility.
