For those investors who have taken the TDF path, it seems to be so far so good. NEST’s Fawcett believes traditional lifestyle does not deliver an efficient solution for a DC default for three reasons: members expect their money to be managed rather than in a set-and-forget strategy; it is operationally easier through not having to switch between different funds; and communicating just one fund to members is easier.
But isn’t plate spinning 45 different funds difficult? “It is pretty easy,” says Fawcett. “We have three distinct phases and we know which particular stage each fund is in, compared to millions of members’ accounts. We are happy with the flexibility it has given us. We have introduced new asset classes into the scheme, changed asset allocation and managed the risk.”
TPT’s Adkins echoes this, saying TDFs provide a more flexible investment strategy and simpler member communication. TPT invests in AllianceBernstein’s TDF solution using 24 funds of three-year vintages. So, for example, a new member might go into the ‘2032 to 2035 fund’ rather than into a fund targeted towards one single year.
“You can easily manage fund proliferation by having three, maybe even five, year vintages,” says Adkins. “We do not find 24 vintages difficult to manage, they suit us down to the ground.”
TDFs are likely to become the delivery vehicle of choice for the DC default, but for now, while auto-enrolment is expected to fuel DC provision, most firms already offering a lifestyle strategy are unlikely to undergo the major task of transferring members and their assets over.
But as this mindset begins to change and TDFs inevitably grow, there is no doubt the boundary between providers and consultants will continue to blur as they do battle for a share of the value chain.
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