The question then becomes, “Where is the end of the evolution?” Choosing a platform that allows you as the consultant to customize the participant experience is important. If we can get out of the mind-set of registered products and think participant behavior, why not introduce the participants to the investment options using simple, easy to understand entry points. If they choose to look under the hood, then so be it. Your job as a fiduciary is more important to the participant who knows nothing than the participant who does, and hopefully your value as a trusted consultant will be magnified by what people don't see.
This could be one mutual fund, a combination of several mutual funds, a collective trust etc., but asking a participant to choose to put money into stock is much simpler than asking a participant to put money into the Blackrock Equity Income fund or the Franklin Rising Dividends fund. What do they do when they don't understand? Nothing. Cash. Fixed. Things that they understand they trust. They might have a preconceived notion about stock, but at least they have a notion. They have some level of understanding. Let's face it, a novice investor would take a look at 30 different stock funds and do what? They would choose the one that has performed the best over the last published period of time. They do not consider things like risk-adjusted return or systematic factors or market capture.
By introducing the single entry point for stock, this allows participants to focus on the more important aspect of their retirement plan: saving!
There is no tried and true solution to creating an optimal entry point to differing asset classes.
These are, of course, just examples of what I see out in the marketplace. They probably are on the extreme end of the bell curve and reflect more of what I envision as the culmination of the evolutionary process.
Our first duty as a fiduciary is to establish a prudent process while our first duty as a consultant is to maximize participant outcomes. Using the behavioral finance data that our strategic business partners continue to publish only further reinforces the need for consolidation in order to maximize the participant experience. We need to take a step back and look at fund menu design from the perspective of the plan participant and not the plan sponsor. Most often, the whole menu is not equal to the sum of its parts and the average plan participant grossly underperforms the benchmark. This is a failure by the retirement community, despite good intentions. This solution helps to maximize the participant experience, simplifies decision-making and helps to maximize outcomes while adhering to our obligation as plan fiduciaries.
Stephen Dopp is the senior investment analyst at Cafaro Greenleaf, Red Bank, N.J.