Personalized solutions would be increasingly attractive to plan sponsors who encourage those saving for retirement to stay with their 401(k) provider after leaving the workforce.
That’s according to PIMCO’s 16th Annual Defined Contribution Advisory Study, which surveyed 36 consultants and advisory firms that serve more than 37,000 clients with $6.9 trillion in total assets in DC plans. . Most of the consultants interviewed said that bespoke solutions are a top priority for the industry. About 80% of aggregators and 65% of large institutional advisers recommend customizing retirement offerings for their clients who offer individual retirement plans.
The top priority for institutional consultants is to expand the capacity for personalized investment solutions; for larger plans, a custom target date fund (TDF) format is their first recommendation. The most important features of the advisor-managed account include the “personalized investment experience for the participant” and the “participant data integration technology”.
“A generational shift in how Americans plan for retirement is creating demand for a more dynamic approach to saving, and advances in technology have made solutions tailored to the specific circumstances of plan participants much more accessible to the general public,” he said. said René Martel, CEO and CEO of PIMCO. of retirement.
Assets of retirees
Other results show that most sponsors advised by consultants prefer to keep retiree assets in the plan (76%). In fact, over the past eight years, institutional consultants have reported a significant drop in the number of sponsors who are indifferent or opposed to asset retention, down to just 25% today from 55% in 2015.
Additionally, 90% of aggregators and 80% of institutional consultants believe that DC plans should offer investments and services that meet the spending needs of retirees (i.e. retirees, notes PIMCO.
Some of the most popular recommendations for plans looking to retain retiree assets include flexibility in income distribution, adding retirement tools/education, communicating the value of staying in the plan and the addition of retiree-focused investment options.
While most prefer to keep retiree assets in the plan, consultants and aggregators differ on recommended retirement income solutions. Institutional consultants prefer TDFs with a regular level payout by a wide margin (64% vs. 10%), while aggregators prefer managed accounts as a retirement income solution (60% vs. 40%). Aggregators also preferred annuity options within the plan (deferred, immediate or QLAC) (50% vs. 10%).
TDFs continue to dominate as the nearly unanimously recommended default option, with all consultants and advisors surveyed ranking it as their top choice, the study notes. Additionally, both institutional consultants (60%) and advisors (60%) said their clients’ top priority included reviewing TDFs.
When selecting a TDF, glide path and cost remain the primary factors, notes PIMCO. When replacing a TDF, all consultants focus on cost reduction and performance against its peer group. Institutional consultants specifically cite a change in plane demographics and concerns over glidepath assignment as growing reasons for changing TDF providers.
Institutional consultants and aggregators also recommend TDFs that further mix active and passive management styles across most plan size segments, according to the survey.
Interest in non-traditional defined contribution plan investments is growing. According to the results, more than 80% of consultants surveyed take ESG into account when selecting investment options, with 40% saying that evaluating and/or adding ESG options are among their top priorities. their clients.
The survey also found that institutional consultants are almost evenly split when it comes to incorporating ESG, with 43% recommending it as an assessment factor for all funds and 39% preferring to offer funds explicitly marked as ESG.
Additionally, a third of consultants believe that private investments benefit the multi-asset portfolios of all clients, with direct real estate, private equity and private credit receiving the highest consideration.
When it comes to the basic menu, more than 80% of consultants recommend CITs when saving 1-3 basis points over mutual funds in the basic range or the default option, depending on the study.
Survey responses were collected from January 4, 2022 through March 7, 2022. The published results were based on responses from companies with over $10 billion in DC assets under management.