BNY, Wilshire roll out small-plan custom TDF option for advisers

BNY Mellon and Wilshire Associates are targeting small retirement plans through a forthcoming custom target-date product, but it could require plan providers to go along with it.

The companies bill the forthcoming service, the BNY Mellon Investment Management Custom Target Date Builder, as the first of its kind for plans with as little as $10 million in assets. The service lets advisers build and compare different target-date portfolios using about 2,000 mutual funds and collective investment trusts from roughly 250 managers vetted by Wilshire.

Advisers pick from among five Wilshire-designed glide paths and can include investment options that are already on plan menus, swapping out individual funds and comparing the effects on performance and fees.

“We look at this as democratizing custom target-dates …  [which] historically have been accessible only by the larger plans — hundreds of millions if not billions of dollars,”said Andy Provencher, head of North America distribution at BNY Mellon Investment Management. “The advisor is truly empowered with the tools and the architecture to build the plan that they and their client [want].”

Several investment providers have rolled out semi-customizable target-date options for small plans in recent years, though they have been more limited in the choices available to plan sponsors and advisers, said Chris Brown, principal of Sway Research.

But there is little comprehensive data on custom target-date products, he noted. The Defined Contribution Institutional Investment Association last year began publishing surveys of custom target-date providers, this year with 14 such firms participating, representing $312 billion in assets.

According to a survey by Callan of 114 plan sponsors, 17% use custom target-date funds, and 21% said they planned to this year. More than 70% of sponsors with custom target-dates said they chose the option to get "best-in-class" underlying funds, and nearly as many cited "better cost structure" as a motivator.

For the new service to have any success, BNY and Wilshire will need to get plan providers to go along with it, Brown noted.

“You can sell the advisers on it. They really built a good interface, and the Wilshire brand is strong,” he said. “But ultimately, they have to get the record keepers to buy into it.”

Some record keepers, for example, give discounts on administrative fees to plans that use proprietary investments affiliated with their firms. So unless a custom target-date includes in-house funds or CITs, some record keepers might look to charge more for plans that use such strategies, he said.

“That could make it hard for [advisers] to get the fees at a level they want,” he said. “It’s going to be a challenge … I’ve seen some great products just flop, because you can’t get the distributors to buy in.”

BNY’s option includes an interface through which advisers can provide a plan’s existing investment menu and target-date suite to Wilshire, which then gives an analysis and comparison to a custom design.

Wilshire will operate in either a 3(21) or 3(38) fiduciary capacity, depending on what advisers and sponsors want. The 3(21) designation is a co-fiduciary role, whereas the 3(38) option means that Wilshire assumes full control of investment selection.

That firm charges for those services based on plan size, and fees are a percentage of plan assets, a public relations firm representing Wilshire stated. The firm declined to provide its range of fees.

BNY Mellon is not directly compensated for the custom target-date service, though it receives investment-management fees for its own mutual funds or CITs that are used within the portfolios, Provencher said.

Because Wilshire has high ratings for some of BNY’s funds and CITs, that firm “would expect active use of these solutions by [retirement plan advisers] building [custom target-dates],” the public-relations firm wrote.