PLANSPONSOR - October/November 2018 - 14

Personalized Investments
A New Approach to Customizing the Retirement Journey
and easy to understand-while going beyond
a one-size-fits-all approach. Today, we can use
the participant data we already have to create
a greater range of investment portfolios and
glide paths tailored to individual participants.
Importantly, technology allows us to do this
with less engagement today than before and at
a potentially lower cost.
PS: Isn't that
the idea behind managed
accounts?
READY: The concept is similar, to be sure. But
what most managed account programs haven't
been able to do is match the simplicity and low
cost of target date funds, which helps to explain
why they haven't become as popular.
Joe Ready (left) and Fredrik Axsater
F
or years, the retirement industry has sought to provide participants in
defined contribution retirement plans with investments aligned with
their individual goals and tolerance for risk. Target-date funds advanced
this cause in a meaningful way but are limited in scope to slotting vast numbers
of participants into the same fund based only on their age or retirement date.
Managed accounts are significantly more personalized but historically have cost
more. To find out what employers can do to offer participants the personalized
investments they increasingly want and expect, PLANSPONSOR spoke recently
with executives at Wells Fargo, which developed one of the first target-date funds
two decades ago. Industry veterans Joe Ready, head of Wells Fargo Institutional
Retirement and Trust, and Fredrik Axsater, head of strategic business segments
at Wells Fargo Asset Management, shared their insights.
PLANSPONSOR: Personalizing
investment
options for large groups of retirement plan
participants has always been considered
important, albeit challenging. Why is it even
more important today?
JOE READY: Needs of plan participants can vary
tremendously from one person to another
depending on where they are in their retirement
journey. Imagine two participants with dramatically
different savings rates, different account
balances, different risk tolerance, and varying
outside assets. They may be the same age, but
their asset allocation should be different. Additionally,
participant expectations are always
increasing, especially now as consumers have
become accustomed to highly personalized
experiences in the retail marketplace. They
expect their retirement plan provider to not
SPONSORED SECTION
only know them on a more personal level but
to grow with them and to continually offer
them the next best steps they can take to help
improve their retirement outcomes.
PS: How can the retirement industry deliver
that kind of personalization-knowing it has
to be delivered across a wide range of investor
needs and scale at a price plan sponsors and
participants find compelling?
FREDRIK AXSATER: Thanks to advances in
technology, we now have the ability to provide
more customized solutions to participants and
give them a better chance of having the type
of retirement they want. The key is to build on
what we've learned from target date funds-
that it is possible to make responsible, diversified
investing broadly accessible, affordable,
PS: How is Wells Fargo Institutional Retirement
and Trust approaching this opportunity?
READY:
We've developed a more personalized
managed account investment solution
called Target My Retirement® that takes into
account virtually everything we know about
each individual plan participant, such as
age, gender, current compensation, current
savings rate, account balance, years to retirement,
how they're investing within their
plan, and what they can expect to earn from
Social Security. We also give them a chance to
tell us more about themselves, including how
they're investing outside their plan. With all
that data, we then match each participant to
a customized asset allocation from a wide
range of portfolios designed to help meet
their unique needs. The portfolios use an
asset allocation model and glide path aimed
at helping the participant replace 80 percent
of their current pay upon retirement. As the
participant nears retirement or as changes are
indicated through the recordkeeping system
or directly by the participant, the glide path
will rebalance. Importantly, this approach
gives us the flexibility to create glide paths
aimed at the year the individual wants to
retire, not on a five-year increment. We've
blended the easy convenience of target-date
funds with the customization capabilities of
managed accounts.
PS: Does this qualify as a Qualified Default
Investment Alternative (QDIA)? And what
does it cost?
PLANSPONSOR - October/November 2018

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