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Visual Representation Is Better Instead of highlighting the funds' asset allocations at a single point, Morningstar is in favor of requiring marketing materials for target-date funds to include a graphical depiction of the asset allocation over time—in other words, a glide path. The SEC’s study found that respondents who reviewed documents with a glide path illustration better understood target-date funds than those who reviewed documents without the illustration. This disclosure would be even more effective with detailed guidelines for glide-path disclosure. Target-date providers should retain some flexibility as to how they represent their glide paths, but investors need clear disclosure of meaningful asset-class exposures, the letter said. Allocations to those less-traditional asset classes can have a significant impact on series' risk profiles. Morningstar suggests that target-date funds disclose intended allocations to broad asset classes representing more than 10% of a fund’s assets, and such exposures should be included in the glide-path graphic. The target-date industry would benefit from clear guidelines from the SEC, outlining what types of investments constitute each broad asset class. Morningstar recommends graphic representation of glide paths for at least three asset class exposures. Even better, they said, would be a graphic with a more detailed depiction of asset-class exposures at all points along the glide path. The letter was from Morningstar divisions in fund research, investment profiles, data, software and Ibbotson Associates, a Morningstar subsidiary, and can be seen with examples of graphs and tables here. Jill Cornfield
Visual Representation Is Better
Instead of highlighting the funds' asset allocations at a single point, Morningstar is in favor of requiring marketing materials for target-date funds to include a graphical depiction of the asset allocation over time—in other words, a glide path. The SEC’s study found that respondents who reviewed documents with a glide path illustration better understood target-date funds than those who reviewed documents without the illustration.
This disclosure would be even more effective with detailed guidelines for glide-path disclosure. Target-date providers should retain some flexibility as to how they represent their glide paths, but investors need clear disclosure of meaningful asset-class exposures, the letter said. Allocations to those less-traditional asset classes can have a significant impact on series' risk profiles. Morningstar suggests that target-date funds disclose intended allocations to broad asset classes representing more than 10% of a fund’s assets, and such exposures should be included in the glide-path graphic. The target-date industry would benefit from clear guidelines from the SEC, outlining what types of investments constitute each broad asset class.
Morningstar recommends graphic representation of glide paths for at least three asset class exposures. Even better, they said, would be a graphic with a more detailed depiction of asset-class exposures at all points along the glide path.
The letter was from Morningstar divisions in fund research, investment profiles, data, software and Ibbotson Associates, a Morningstar subsidiary, and can be seen with examples of graphs and tables here.
Jill Cornfield
PLANSPONSOR staffeditors@plansponsor.com