Rather than choosing a target-date strategy based on fund selection, (k)ustom Advisor helps sponsors evaluate plan participant demographics, assess the platform capabilities of record keepers and third-party providers, develop a custom implementation road map for a TDF series and manage the fiduciary oversight.

According to Beichert, innovative target-date strategies like custom TDFs can help advisors differentiate themselves to sponsors and participants. In custom TDFs, fiduciaries can tailor a glide path and a fund lineup to suit specific situations.

“Employees aren’t exiting plans in the same way—some retire and take distributions, some take a lump sum when they leave,” Beichert says. “They aren’t all the same. Some receive stock options, and thus a TDF wouldn’t need as much of an equity exposure. Others still have a defined benefit plan, thus a TDF wouldn’t need as much of a fixed-income exposure. Advisors need to account for the variability.”

The DOL appears to be open to the use of custom target-date series to help sponsors tailor a better solution to their participants’ needs, says Arnott, because the funds are potentially better at meeting an individual participant’s needs.

“We’re starting to see more interest in customizable or multi-manager options because of the heightened requirements and awareness around fiduciary responsibility,” says Arnott.

American Funds, which also functions as a record keeper, is keeping its proprietary funds within TDFs, but using its broad mutual fund lineup to create a more customized asset allocation for plan participants—instead of shifting among asset classes, American Funds also shifts within asset classes as the target date approaches.

Lang describes the process as a dynamic glide path—so as a participant’s equity allocation decreases, the nature of the exposure shifts toward higher-dividend-yield, lower-volatility products. American Funds’ TDFs carry expenses ranging from 35 basis points for a 2010 TDF to 46 basis points for a 2060 fund.

Lang argues that open architecture and “custom” target-date products carry their own risks.

“Not only open architecture TDFs, but ‘custom’ ETFs seem to be getting more attention,” says Lang. “I would warn that best-in-class funds across asset classes won’t always create the best portfolios. It can help to have managers who are familiar with all the underlying building blocks of a TDF.”

John Hancock offers series of multi-manager ETFs. The asset manager has used a multi-manager fund-of-funds approach in target-risk funds since the late 1980s, so when TDFs came along, the firm took the same tack. Now the firm has $100 billion in TDF assets across three target-date series managed by 175 investment professionals.