In the world of 401(k) plans, there seems to be another oxymoron: “scalable customization.” The feedback I’m getting from many advisors is that some think scalable customization is a contradiction of terms. While many like the concept of customized solutions – particularly in the form of customized target date offerings – they say they don’t have the bandwidth to support it.
Now, as a practitioner, you may be asking yourself whether you can make “customization” “scalable.” The answer is, yes, you can. Recordkeeper capabilities and technology have evolved greatly, making customization absolutely scalable for advisors.
Creating customized solutions can be complicated if you don’t have the right tools and resources, though. We’re here to help un-complicate it. Some available resources are identified below.
As your plan sponsor clients explore new ways to help their employees become “retirement ready,” you can help them develop customized investment solutions designed to meet their plan needs. While the role you play may differ from client to client, semi-custom target date funds (TDFs) are potential solutions that sponsors will look to their advisors to develop and implement.
Incorporating semi-custom TDFs into your business model is easier than you may think. Small modifications to your approach can significantly expand your value to existing clients and attract new ones. Regular retirement plan review meetings with the plan sponsor’s investment committee are an excellent opportunity to engage your clients in a dialogue about semi-custom TDFs.
Start with this 5-step checklist:
- Identify plans that could benefit from utilizing a semi-custom TDF solution. Some of the top drivers of a semi-custom TDF solution include underperformance of the plan’s existing TDF or of the underlying funds within the TDF, the level of glide path risk, lack of diversification of investment managers, and changes to plan demographics or plan sponsor objectives after the current TDF was added to the plan.
- Contact the relationship manager at the plan’s recordkeeper to verify the infrastructure and capabilities to support and administer semi-custom TDFs. Obtain information on implementation costs, as well as any required documentation that needs to be completed.
- Consult with the plan sponsor to identify the ideal TDF design characteristics that will establish the foundation for the semi-custom TDF design. These include the glide path risk level, “to” or “through” approach, asset allocation (underlying investments and investment manager selection), fiduciary roles and responsibilities, and administration (reporting, benchmarking and communications needs).
- Determine whether the plan’s core investment menu satisfies the desired asset allocation required to build the semi-custom TDF(s).
- Develop a semi-custom TDF prototype to compare with the plan’s existing TDF solution. Create a proposal for the plan sponsor and investment committee explaining the rationale and potential benefits of implementing a semi-custom TDF in their defined contribution plan.
As a plan advisor, you will be a key resource to help your clients select the options and platforms that best meet their needs and accommodate their governance process. Following this process and leveraging recordkeeper capabilities will enable scalable customization.
No Need to Go It Alone
OppenheimerFunds offers a variety of resources to help advisors implement customizable and scalable retirement programs for their plan sponsor clients. These include our Target Date Fund Review Toolkit and Five Steps to Getting Started with Semi-Custom TDFs.
Perhaps the biggest advantage we can offer is the expertise of our team of Senior Advisor Retirement Consultants. Our consultant team works with advisors to help them understand third-party provider capabilities and employs analytical tools to help advisors with the evaluation, selection, and ongoing monitoring of a semi-custom TDF. Our consultative approach reflects our commitment to help advisors better serve their clients and grow their business in today’s complex environment.
The bottom line is that the process of implementing scalable, customizable retirement solutions for your plan sponsor clients does not have to be pretty ugly – there’s an oxymoron for you.
Visit oppenheimerfunds.com/dcio for access to OppenheimerFunds’ (k)ustom Advisor program of actionable ideas and practical resources on custom model solutions.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
The date in a target date fund's name refers to the approximate year when an investor in the portfolio is assumed to retire and likely would stop making new investments in the portfolio, and may plan to start withdrawing money. Using an asset allocation “glide path,” (how the asset allocation changes as the target date nears) the portfolios generally become progressively more conservative until and after the approximate date of an investor's “transition” into retirement. An investment, including the principal value, in a target date fund is not guaranteed and a portfolio can suffer losses, including losses near, at, or after the transition date, and there is no guarantee that a portfolio will provide adequate income at and through the investor's retirement.
Discussion of custom and semi-custom TDFs is not intended to represent investment advice that is appropriate for all investors. Each investor's portfolio must be constructed based on the individual's financial resources, investment goals, risk tolerance, investing time frame, tax situation and other relevant factors.
OppenheimerFunds does not recommend any specific asset allocations. A financial advisor can suggest an asset allocation strategy designed to meet your financial goals, time horizon and risk tolerance. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns and does not assure a profit or protect against loss.
These views represent the opinions of the Senior Vice President, National Sales Director DCIO at OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.