Increase Your Value to Plan Sponsors—Deliver a Fund Lineup Based on the Right Building Blocks

FINANCIAL ADVISORS ARE being challenged more each year to demonstrate their unique value to their retirement plan clients in new and better ways.  At the heart of the plan sponsor/advisor relationship is the fund selection and ongoing investment due diligence process.  In today’s retirement plan market, the investment process must go beyond selecting from an inventory of mutual funds.   An advisor can demonstrate value offering an investment strategy based on these three building blocks.

1. A core group of low-cost index funds covering major asset classes
2. Cost effective target-date funds
3. Advisors’ unique expertise with actively managed funds in key asset classes where the advisor or firm has special focus

First building block—the core

Consider a core investment group that delivers on two key criteria consistent with any defined contribution investment policy— (1) offer investment choices that provide participants with an array of cost-effective investment vehicles representing the major asset categories in terms of risk/return characteristics and (2) provide investment vehicles that are distinctly different and readily, consistently describable in terms of investment characteristics and benchmarks.  Or, more simply put, offer participants a core group of funds that they can make sense of, that are cost effective, and that they can rely on from one quarter to the next (important because we know the majority of participants rarely rebalance or change their investments after their initial selection).  A core group of low-cost index funds that cover the major asset classes meets those criteria.  A core index strategy simplifies the investment process for participants and plan sponsors and allows advisors to focus their attention elsewhere.   

Second building block—cost effective target-date funds

Morningstar indicated that the average expense ratio for target-date retirement funds was 1.29% at the end of 2006.  This compares with the average expense ratio of 401(k) investments of 0.75%, according to a survey by Deloitte Consulting LLP, New York.   Many experts are predicting that the majority of 401(k) assets over the next ten years will be directed to these types of funds.  Cost-effective choices will be key to plan sponsors and their participants.  Many large 401(k) plans are choosing to build their own target-date funds using the fund options already in their plans.  Advisors can add value by offering a customized solution to their clients with target-date options comprised of the plan’s core investment group.  A low-cost core index strategy provides a cost-effective route to target-date fund options for advisors’ clients.

Third building block—advisors’ unique expertise

Rarely are investment advisors experts in all asset classes.  Most advisors and their firms have areas of specialization where they shine.  Supplementing a core index fund lineup with additional choices that represent the best and most passionate expertise an advisor can provide will not be duplicated. And, because the core fund lineup has already covered all the bases, your unique expertise can be very narrowly focused.

The right investment building blocks

The three building blocks of a retirement plan investment strategy outlined above deliver an investment program that plays to advisors’ strengths while delivering clients a fund lineup that is both cost effective and simple to manage—a winning combination all around. 

For more information about Pentegra Retirement Services’ institutional index fund lineup or to receive the 2007 revised edition of our publication, “The Case for Indexing:  Debunking the Active Management Myth” contact Gwen Burroughs, Chief Marketing Officer, at 800-872-3473, or email gburroughs@pentegra.com.

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