No escaping fee compression for target-date managers - Cerulli reasearch

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In the face of fee compression, target-date managers and retirement consultants are exploring new avenues for customization, research from Cerulli Associates' US Retirement Overview finds.

Options such as blending active and passive strategies, creating white-labeled, open architecture products and incorporating a transition to managed accounts are all being considered by target-date fund managers.

Daniel Uquillas, a senior analyst at Cerulli, stated: "As target-date fund managers continue to look for ways to deliver customized solutions at scale, some retirement plan consultants are trying to distinguish themselves by creating open-architecture, multimanager target-date funds with different subadvisors for each asset class."

"We recommend that target-date managers examine the potential demand for dynamic solutions, as many savers nearing retirement could benefit from customisation."

In 2018, total active target-date fund assets remained higher than passive, but their share of the US retirement marketplace lead over passive target-funds fell to 12% from 18.1% in 2017. Development of new products, such as hybrid target-date funds, which use a combination of active and passive management, are changing this dynamic.

Uquillas added, "Assets invested in hybrid target-date funds are growing, and nearly half of target date managers surveyed believe that hybrid target-date products will gather meaningful defined contribution plan assets during the next one to three years."

The most interest in hybrid products came from fully active sponsors looking to pay lower fees, equal interest had come from fully passive sponsors, which may view the active component as a means of providing downside protection in the event of a market downturn.

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