How does this approach stack up with more traditional asset allocation funds? Is it a better deal for participants?
align=”center”> The Panel Audio File
Jerry Bramlett , President & CEO, BenefitStreet, believes it is a better deal. Speaking to attendees at PLANSPONSOR’s 2008 Future of Asset Allocated Funds Conference in Newport Beach, California, Bramlett said asset allocation solutions should be based on the funds already in a plan because those are the funds employees know and they will be more likely to use the funds correctly. He said a restrictive proprietary choice is a step backwards, limiting participants to the funds and asset classes the provider has in inventory.
Jamie Kitchens, CIO, National Retirement Partners, agrees that customization creates the potential for enhanced use of asset classes. He said sponsors should be careful to consider costs and fees with a customized solution, but added that building your own solution could provide a way to reduce costs. Sponsors can save costs on asset classes and on provider services.
Thomas Strobe, Managing Director, BlackRock, suggested sponsors find a firm that can handle the customization project, consider all pertinent factors, and come up with the right solution for their plan. Providers are more knowledgeable, Strobe said, they can handle the tricky component of risk management as well as leverage their buying power.
Strobe warned that sponsors should consider the amount of fiduciary responsibility they want to take on before deciding to customize asset allocation funds for their plan.
Bramlett added that advisers that choose to customize a solution should take on a greater role in picking the underlying funds of the asset allocation solution and the glide path. He reminded conference attendees that the Qualified Default Investment Alternative (QDIA) regulations require that the funds be administered by a fund manager or plan fiduciary (see Building a Better Default , also The Personal Touch ).
Finally, Bramlett said the rationale for the solution should be embedded in a plan’s investment policy statement.
Kitchens added that sponsors should include specific language on what to do with underperforming funds, how ongoing monitoring will be carried out, and the conditions for removal of underlying funds.