Episode 8 : 10/07/2016

Custom target date funds

Philip Chao

Chao & Company


Ben D. Jones
Managing Director – Intermediary Distribution
BMO Global Asset Management

Matt Smith
Managing Director
BMO Global Asset Management

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Custom target date funds: is the juice worth the squeeze?

In this episode, Ben Jones sits down with Philip Chao of Chao & Company in Washington DC to discuss custom target date funds and the concept of building Custom QDIA or Qualified Default Investment Alternative in retirement plans. This has been a hot topic for fund managers, advisors, consultants, and plan sponsors in the US and advisors and their clients must weigh the benefits, challenges and the costs. Topics covered in this episode include the evolution of custom QDIA and reasons for implementing, the challenges plan sponsors face and other considerations to help you have better conversations with your clients about this important investment option.

In this episode:

  • Why QDIA has exploded in recent years
  • Analyzing target date funds
  • Target Date Funds: Buy vs. Build
  • Outcomes for plan sponsors and participants
  • The future of custom QDIA

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Philip Chao – And sometimes plan sponsors get excited because they want to do the right thing, and they get into sort of creating their new toolbox, and that they can build all kinds of stuff.  And they get excited along with the consultant, along with everybody else, the momentum picks them up and they are doing their thing, and they kind of forgot what they are really doing.  

Ben Jones – Welcome to Better conversations. Better outcomes. presented by BMO Global Asset Management.  I’m Ben Jones.  

Matt Smith – And I’m Matt Smith.  In each episode we’ll explore topics relative to today’s trusted advisors, interviewing experts and investigating the world of wealth advising from every angle.  We’ll also provide actionable ideas designed to improve outcomes for advisors and their clients.  

Ben Jones – To learn more, visit us at bmogam.com/betterconversations.  Thanks for joining us.  

Disclosure – The views expressed here are those of the participants and not those of BMO Global Asset Management, its affiliates or subsidiaries.  

Philip Chao – Philip Chao, I call myself the principal.  Means many, many different things to different people.  And it’s with Chao and Company, which is a company I founded.  My job is to be the chief consultant, chief bottle washer, and chief everything else.  We’re recording in my conference room in Vienna, Virginia, which is just around the corner from an area called Tyson’s Corner, northern Virginia, is a suburb of Washington, D.C., our nation’s capital.  

Ben Jones – Global headquarters for Chao and Company.  

Philip Chao – Global headquarters, yes.  

Ben Jones – Fantastic.  

Philip Chao – Indeed.  

Ben Jones – Before we dive into the meat of our subject, could you maybe provide us a little bit of background about you and Chao and Co. and how this came to be? 

Philip Chao – Sure.  We really start focusing on serving the retirement plan community almost 20 years ago.  We find that the 401k space was not well served back 20 years ago, and in some way not well served still today.  Even though the not well served-ness has evolved in different aspects.  Back then was what are the new things that you can throw on to a platform and bells and whistles days, where you said gee, wouldn’t that be neat if we have another one of those things so that our participant can get, between you and me, more confused.  So we spent a whole bunch of time back then thinking about education, communication, thinking about portfolio construction in a slightly different way than it is today.  To think about how to encourage participants to understand the voluminous amount of options.  I think if you’d look back to those days, it kind of almost made sense, because again, everybody kind of took it lightly.  Thinking oh well, that’s just a nice thing to have.  So if we fast forward over the years, if we think about retirement plan being really a retirement plan, which is creating wealth and stream of income for the rest of one’s life when one can no longer work or no longer wish to work, that is a heavy burden.  Everybody knows now that we are really trying to create a defined benefit stream of income of under a defined contribution environment.  So this whole shift of risk from plan sponsor, either rightfully or wrongfully, to participants is not really well understood.  I still don’t think it’s well understood today.  

Ben Jones – Transferring the risk without the knowledge.  

Philip Chao – Absolutely without knowledge.  And the question is can the knowledge be transferred.  So that’s a separate question.  So you’re absolutely right Ben, I think the issue is how do we as consultants or advisors, however we call ourselves, help number one the plan sponsor understand this — I don’t think it’s a new phenomenon; it’s been 25, 30 years in the making.  But also, once they understand what’s the purpose of the plan, which is one of the first things that we ask clients or prospective clients.  Then to translate that thought and that objective to the participants.  I don’t know if I answered your question completely, but that’s how we think about retirement plans and how we have practiced over the years in trying to improve the overall outcome as how we defined it over time to both the plan sponsor and the participants.  

Ben Jones – Today we’re talking custom QDIA, or qualified default investment alternatives for retirement plans.  This has been a hot topic for fund managers, advisors, consultants, and plan sponsors here in the US.  As a note for our international listeners, this episode might be a bit US-centric.  In light of the DOL’s guidance around target date funds and the new fiduciary rules, many advisors are diving even deeper under the hood of QDIA options and exploring the possibilities of customization.  In this episode, we’ll cover the reasons to consider custom QDIA, the challenges, along with other considerations that might help you have better conversations with your clients on this important topic.  Since the Pension Protection Act of 2006, there’s been a broad adoption of QDIA strategies with target date series being the popular choice to date.  Why has QDIA taken off?  What are the different gradients of custom being built today?  

Philip Chao – I think this is where — something that’s obvious, that the regulation drives behavior.  It also tells us that when plan sponsors are threatened or believe that they are threatened, real or otherwise, by potential fiduciary litigation, they are looking for some shelter.  QDIA offers them that shelter.  I don’t believe QDIA as it is practiced by most really able to provide the shelter as they think it is.  However, with that said, I think that QDIA makes a lot of sense as they have developed what those three types of investment strategy solutions that would be considered as a QDIA, namely target date fund, risk-based fund, and managed accounts, I mean basically.  

Ben Jones – I think we could spend an entire podcast on the idea of analyzing target date funds.  It’s been the industry’s debate for many, many years, and will continue to be for many years into the future.  I know you a while back, actually maybe even three or four years ago, wrote a paper on Bull or Bull’s Eye, which is a quantitative review of tools for analyzing target date funds.  Stepping aside from this idea of prudently selecting the right target date fund, there are many packaged products available — many of these products are full of proprietary content, and this has kind of created a lot of noise.  I think along with some of the DOL opinions on this has kind of sparked this idea around the idea of custom QDIA or custom target date.  What do you think about this idea and this trend?  

Philip Chao – So I think the word custom is somewhat abused.  I typically use tailoring as a way to think about it.  So if Ben, you and I walk into a nice store that sells men’s clothing, and you will say do you offer custom clothing, they would say yes.  You would think that they know exactly what you’re asking.  Well even custom, there are at least two types.  One is basically you walk in and there’s some master tailor in there who will measure every part of your body and create a new pattern just for you and with your name on the label and nobody else will use it.  You will come in for three, four times to make sure that pattern fits you perfectly.  Once they do that, then you select the cloth, you select the button holes, you select every aspect of your jacket, your trousers, your vest, whatever that you’re making, and create that custom suit for you.  That’s truly custom, which is basically starting from scratch, identifying exactly what your objectives are, what will fit you, in this case your participants, overall.  So that’s a true custom.  The other way is you walk in and they say well gee, you look like a 42 regular or 42 long, it’s like great.  Here are some swatches of clothes and put one on, oh yeah, it fits you pretty well.  What we’re going to do is we’re going to order a suit pretty much like the one you just tried on except in the fabric that you want, and maybe instead of single pleat, double pleat, cuffs, no cuffs, whatever it is.  When they bring that suit in, then we have a tailor nip and tuck it to make it fit better.  

Ben Jones – Yeah, it’s interesting, listening to you say this, it kind of reminds me of my most recent car buying experience.  It’s really just options, not as much custom.  It’s not a custom vehicle; I didn’t build the vehicle from scratch, but choosing options.  So it’s an interesting point.  In the purest form of custom, there are people who choose to go full custom.  

Philip Chao – Absolutely.  

Ben Jones – There are also a lot of different iterations of custom.  Maybe walk through some of these other hybrids.  

Philip Chao – So I think of custom in the following way.  There are basically break it down into two types of custom.  There is the custom that is actually creating an investment vehicle using everything that you want in it.  So let’s say in the form of a CIT, so that you select the strategic glide path, which we can spend a little bit of time on if you want.  It’s select — within that glide path, can you make tactical moves.  You select the underlying investment vehicles.  That can also be maybe a white label vehicle; it could be a publicly available vehicle.  It could be almost anything.  It could be a beta only; it could be an alpha driven vehicle.  Then on top of it, you select how it gradually rolled down.  Is it every five years it kind of drops, or do you want that to be done annually.  You can also have to make decisions about re-balancing; you have to make decisions about when cash flow comes in, what are you going to do.  So lots and lots of stuff.  You can bundle it all together into a CIT type vehicle, then you have a number of CITs over time and you create your own glide path.  So that’s one way to sort of think about custom through that vehicle.  

Ben Jones – Very complex.  

Philip Chao – Very complex.  The other type of custom is really a record keeping custom.  Most recently I attended an event by record keeper who is saying we can do custom, what  basically is a record keeper.  So you pick whatever underlying funds, you create whatever glide path you want.  Our role is to make sure it is fulfilled to your specificity.  So there’s no need to create CITs or individual units, so to speak.  It’s just really saying here’s your core menu, great.  Here’s another core menu — whatever you want.  If you just tell us the strategic glide path and we’ll re-balance it when money comes in.  That is a somewhat custom — I don’t think that a record keeper can do a lot of the risk management things, derivative stuff.  There’s lots of other things that we haven’t talked about that really give the glide path more robust-ness, and its ability to really handle the risk/return parameters that a plan sponsor should or would be desirous.  So those are the two ways I think about custom.  One is really create a CIT type unit; the other is really using the record keeper to express your custom.  But I think the second one with using the record keeper is perhaps more elementary than the ultimate custom.  

Ben Jones – Now that we have a better idea about the different ways that people build custom QDIAs, advisors and sponsors need to be clear about the reasons to consider a custom QDIA.  What are the challenges and benefits for both plan sponsor and their participants?  To get to the best option, Phil talks about important questions advisors need to discuss with their clients.  What is it that the plan sponsor is trying to accomplish?  Where are they trying to go with this type of solution, and how can we provide them a solution that helps them reach the desired outcome of their plan? 

Ben Jones – What are some of the cases where customization makes a lot of sense for a plan sponsor to consider?  

Philip Chao – I think when you have big enough scale where you are able to really lower the cost in a meaningful way, not just a little bit, but really meaningful, by unbundling a pre-packaged shall we say, off the shelf shall we say, publicly available target date fund series, where you think that by unbundling it by hiring your own glide path manager, by hiring your own consultant, by picking the investment underneath, by expressing your portfolio construction construct, and you’re able to lower costs and have better drivers.  Even though I think those drivers are secondary of importance, they are important.  Then you should start thinking about it.  So cost is obviously number one and on a lot of people’s mind, so that’s one of the drivers.  The second driver is really if you have such a unique population that let’s say you have a very young population and that your population is not so barbelled, or it’s very concentrated, very uniform, or very specific, that a glide path of a varying portion over time that may not suit your participants.  Put it another way, Roger Ibbotson wrote a paper about human capital, which Ben, I know you know a great deal, you can recite it probably in your sleep.  It’s really thinking about juxtaposing you as an individual, the type of risk you take in your work should be taken into consideration with the kind of risk that you want to take with your portfolio.  I don’t want to go down this path too far, but the idea is to really be more sensitive to the industry by which you are in, the age of the people that work in the industry or for you as an employer.  And maybe we can think about that and really create a more atypical glide path.  When I talk about glide path, not the gliding portion, but the asset allocation, how it can be expressed.  That’s number two.  And number three, there’s more and more, and I think it’s probably more asset manager driven, consultant driven, the thinking that they can make a difference in bringing alternatives.  So there are on the one hand defined contribution plan sponsors thinking about gee, maybe we should bring in the liquid alts into this space and for diversification purposes.  The standard byline is bond-like behavior, almost equity-like return.  God forbid if we ever get that, that would be wonderful.  And how that can actually add value to both correlation or lack thereof, and enhance better longer-term results.  

Ben Jones – And in the larger market these might even take the form of illiquid alts.  

Philip Chao – Absolutely.  But that would one other area why custom would make sense, because you are able to add not just a bit, but meaningful.  

Ben Jones – Things that you wouldn’t normally maybe put on a core menu.  

Philip Chao – Right, exactly.  

Ben Jones – Sharp instruments 

Philip Chao – Exactly.  Real estate, illiquid real estate and other things that can add — again, what are we trying to do.  We need to go back.  We’re trying to get a better outcome through better portfolio design.  

Ben Jones – I want to talk for a minute about what are some of the benefits that custom provides to the sponsor and ultimately the participant.  You mentioned cost was a big driver for an employer or plan sponsor to be able to meaningfully drive down their cost.  They’ve got to be quite large.  So talk to me a little bit about the outcome side of the equation from the participant’s lens.  Why would they benefit from custom?  

Philip Chao – So the idea — well, now we’re talking about any — ideally what a custom would look like.  I don’t really know if all the customs that’s out there would really do what one expects it to do.  So the idea is really think about using custom as really driving stream of income.  Driving a value that would be sufficient in theory to buy an annuity, and then we’d go into some different direction, but buying an annuity that’s sufficient to replace the participant’s income at a certain percentage for rest of his or her life.  That’s the idea.  I think that this is part of the industry that we are shifting from as you asked me what was I doing 20 years ago perhaps.  At the time I think the world was thinking how do I get the most pile of cash on the table at age 65.  That was kind of the idea.  So let’s get all the five star funds always all the time, give me the highest return always all the time, and I’ll be happy, because when I’m 65 I will be a millionaire and I can do whatever I want.  Well, that is really kind of like Superman, it really doesn’t work.  Because the ability to manage that $1M — assuming you even get it, which most of the people don’t — carefully and prudently so that you will not outlive your income, and then many other risks associated de-accumulation phase.  It was not really thought about, was not really focus.  So today it’s about driving to a number or driving to a state by which the desired outcome can more favorably realize than not.  And with that, what means not just driving the highest return, in fact highest return is less significant, but higher degree of certainty.  And to drive higher degree of certainty requires risk management and risk tools.  So custom can do that, but my question is are there enough people out there who do custom, either hiring a 338, and there will be many 338 who have the capacity, and the tools made available to drive that equation, to drive that outcome.  I don’t know that, but ideally to answer your question, that would be the ideal that we can create a glide path, a management process, the thoughtfulness, the risk management to practice, and all the tools that’s required to get us to the less bumpiness in our travel to that destination at age 65.  That would be ideal.  I’m suspicious that is really achieved.    

Ben Jones – So let’s talk a little bit about the challenges.  I mean, we talked about the benefits in this panacea, there’s obviously a lot of challenges.  So all of the challenges of prepackaged products around benchmarking, glide path selection, underlying fund selection, those all still exist in custom, but beyond that, there’s also a lot of other challenges.  Talk through some of the considerations that sponsors and our advisor audience need to consider.  

Philip Chao – I think a lot of sponsors are very sophisticated in really thinking a pool of money and investing that pool.  They are not very sophisticated thinking about a lifetime commitment to invest that money on an individual basis, in that sense.  

Ben Jones – It’ll actually span past many of the years of the people on the investment committee.  

Philip Chao – Exactly, exactly.  So, I think there’s a different frame by which they need to think about, and I’m not sure all plan sponsors feel that they understand that.  Or, they may think they do, but they may not have the pleasure of actually changing the frame the way it’s necessary to think about a lifetime investment from the 20s to the 60s, 70s, and beyond.  

Ben Jones – So what are some best practices our audience can use to help their sponsors understand the challenges beyond just the allocation and investment selection.  There’s legal costs, there’s communications, there’s the recordkeeping fees for unitization.  How can they really kind of help the investment committee understand the magnitude of what they’re signing up for?  

Philip Chao – I think there are two drives.  The first driver is to be very clear to have this conversation with the plan sponsor: What are you trying to accomplish?  Now, we’re certainly going to lead the witness.  I mean, we’re going to throw in some suggestions.  But, it cannot be us driving it; it has to be them driving it.  So we are at best co-pilots, we are not pilots, from a consulting standpoint, so that’s number one.  We’ve really got to have a good conversation, a serious understanding for us as well as for the plan sponsor what are they trying to accomplish.  Where are they going with this?  I think part of this discussion also is the changing of the world that we live in, how long employees are really staying with any one employer, and the millennials, and defining work.  

Ben Jones – The gig economy.  

Philip Chao – Right, the gig economy.  Defining work, defining location, defining lifetime employment, defining all the things that we have taken for granted for at least the Baby Boomer era and prior, that those are all being questioned.  Not only questioned here, questioned globally.  And, I think it’s taking off at a faster and faster clip, and that is relevant.  But yet, our framework by which we think about retirement from a plan sponsor standpoint is from cradle to grave, right?  I mean, the fact that we’re talking about it right now is oh boy, how do we help these poor individuals to get to a place where they can ride off into the sunset and make sure there’s enough money to replace?  That discussion may change completely.  So that’s number one, is really understanding very, very clearly what drives that employer.  Why is that employer sponsoring this plan?  Why is that employer doing what he’s doing, standing in front of me and having this conversation — or she.  Number two is to be very clear, intellectually honest with the consultant, why is he or she bringing this topic up?  Is it because that their firm specializes in it, and that you are a hammer and everything is a nail?  Or is there something that is much more ethical, much more fiduciary-centric, that they have already identified that these to be the points of weakness in a plan sponsor’s situation, and really bringing it up for his or her or the committee’s consideration.  Not driving one way or the other, but really making sense.  So, we can do a lot more.  Used to be $1B or more before you can even think about a custom.  Well, that’s ratcheted down further and further as the cost of implementation lowers, right?  

Ben Jones – I like the analogy of a co-pilot.  Taking time through discussion to get really clear with your client about what it is they’re trying to accomplish.  Why they’re considering customization, and why you’re bringing this type of solution to their attention?  If your aligned around the objectives and you’ve weighed all of the advantages and challenges of implementing the custom QDIA, now it’s time to figure out how you analyze the effectiveness of this unbundled solution.  

Philip Chao – You mentioned a white paper that I wrote a few years ago, Bull’s Eye.  It’s regarding how we think about benchmarking target date.  It doesn’t really matter if it is custom or not custom.  The way to think about that is to really think about the strategic glide path looking for.  So, there are really three pieces if you break it down.  First is strategic asset allocation, which is the glide path.  The glide path I don’t particularly like, because people, that’s all they think about is the equity component of a portfolio, and there’s so much more to a portfolio construction that just how much equity is it.  But that’s a shortcut way.  

Ben Jones – And some equities act like fixed income, and some have —

Philip Chao – Like a person.  

Ben Jones – Yeah.  

Philip Chao – So, I rather prefer thinking about a risk glide path rather than an equity glide path, but let’s not worry about that.  So, number one is to say: Do I agree with the glide path?  The way that equity, or risk assets, diminish over time, and how does that coincide with my participant demographic?  That’s number one.  Number two is to say: Do we give the manager any leeway to do tactical — sometimes people now — the latest things are dynamic, which I used to consider that as market timing, but apparently that’s not the case.  It’s just a bigger variance, a bigger degree of bandwidth instead of a tighter bandwidth which would be more tactical, is my way of thinking.  That’s number two.  And then number three are the components that makes up that glide path, which is either beta, which is basically indexed funds, or you can even go into some factor-based indexed funds.  But, primarily is a quantitative investment.  The other is alpha drivers that we believe that there are managers and management teams that can outperform on a risk-adjusted basis then a beta.  So there are really three components.  Once you have figured out what that glide path is, every quarter or every however often you prudently monitor, is to say we have selected this glide path, or the glide path manager, and if we didn’t have anybody to manage it — we didn’t vary it by any way of tactical or dynamic, and we used only beta, we didn’t use any alpha drivers — what would the outcome have been, or the performance, or the risk-adjusted performance, would have been during the reporting period.  Now, let’s look at what your actual performance is, and then we can do some attribution.  How much was this because of the tactical dynamic, did it add or subtract, and how much was it based on the drivers underneath.  Is it beta or alpha, and did they add or subtract?  So, at the end, we realize hey, we underperformed because of either we were getting too smart and moving things around, or the alpha drivers just didn’t perform during this period.  When we continue to do that over time, we will say hey, maybe all these people are worthless.  I just keep that glide path and use a passive, non-tactical expression, and I have gotten what I originally asked for.  Having everything else was supposed to enhance the experience, but yet it detracted from the experience, and I didn’t get what I’m looking for.  

Ben Jones – Yeah, and that by itself — attribution in multi-asset funds is very difficult to come by.  

Philip Chao – It is.  

Ben Jones – It’s also going to be very time period sensitive.  

Philip Chao – Absolutely.  

Ben Jones – Because no one is going to be able to express the right answer all the time.  

Ben Jones – There are a lot of variables and factors to consider about how to appropriately measure if your custom QDIA is delivering on its objectives.  You need to know how you will monitor the solution before you implement it.  So, I asked Phil based on all the moving parts, increased effort, and ongoing management, what his thoughts were on the ability of custom solutions to improve the outcome.  Custom QDIA, custom target date, is the juice worth the squeeze? 

Philip Chao – They do a lot of squeezing, and I’m not sure there is enough juice to really fulfill what the expectation of the plan sponsor some of the time, if not most of the time.  I think it’s about understanding what that tool can do, and the amount of cost and involvement and liability and responsibility is required to replace a Blackrock, a Russell, a PIMCO, whomever, American Century, whatever, to not only do what they do — which they do very well — but do even better, because we have something that is unbundled, and to choose a startup on all aspects of it and do it ourselves.  I think it’s questionable.  I think it’s questionable, but it would be interesting to actually do a study of all those who have custom, and how they feel they are doing 3, 5, 10 years hence.  That would be a survey worth examining.  

Ben Jones – I asked Phil about the evolution of custom, and what the future might hold for custom QDIA.  He also went on to share some parting thoughts for advisors.  Has custom QDIA as it exists today reached its full potential, or, as maybe you were just articulating, what might we expect going forward?  

Philip Chao – I think to answer that full potential, we have to know what full potential means.  We have to know gosh, has it reached its destiny?  I’m afraid that destiny is to be defined by each plan sponsor, and I think that now it is becoming a sales technique, a strategy, something new to talk about, and then we hold up the 2014 DOL recommendation.  And say well DOL will expect you do it.  Oh really?  Great, then you should be doing this, and I happen to be the right person to help you to do it.  Now, I may or may not be.  I’m not saying everybody is conflicted or —  

Ben Jones – Quite a cynical view.  

Philip Chao – Yeah, full of self-interest.  I think that’s just a human condition.  But, the idea is, to really reach that destiny, is to, say, take a look at all the plan sponsors who have done custom.  How satisfied are they?  When was the last time they checked their satisfaction?  How do they benchmark it?  How many of them have replaced their 338?  If nobody’s every replaced 338, that’s a perfect score.  Is that even real?  I don’t know the answer.  

Ben Jones – Good questions.  

Philip Chao – I don’t know the answers, but I think — and Ben, you and I, when we first met — well, not first met, but probably the third or fourth time — I always have this saying that don’t hire somebody unless you know how to fire them, and sometimes plan sponsors get excited because they want to do the right thing.  And they get into sort of creating their new tool box, and that they can build all kinds of stuff, and they get excited along with the consultant, along with everybody else.  The momentum picks them up, and they are doing their thing, and they kind of forgot what they are really doing.  

Ben Jones – On this — kind of the future of custom, it seems to me like you mentioned the panacea is everybody has their own custom glide path built for their own situation, and taking into account multiple variables.  Do we get there with technology, and should we expect that as an expectation going forward?  

Philip Chao – Again, I think that the whole idea of target date funds started, in my opinion, is in the old days — it wasn’t that old, but old days — where everybody fit into five buckets.  You have the conservative, the moderate/conservative, moderate, moderate/aggressive, and aggressive.  I don’t care who you are, what color or religion, you fit into one of those five buckets.  

Ben Jones – Yeah.  

Philip Chao – Okay, dump you in the moderate bucket, and let’s just call it a 60/40 bucket.  The whole world is in a 60/40 bucket, everybody taking the middle. Your the middle. The problem was that inertia tells us we never change, and we’re in that bucket forever.  Well, somebody is smart enough to say hey, that doesn’t make sense.  These investors have to make a decision as they get older, perhaps — or as their risks change, doesn’t have to be older — they should want to go a little bit more conservative, perhaps.  So, come QDIA time, there already was a target date fund, but really thinking, boy, if we can automatically turn from aggressive to moderately aggressive to moderate and so on over time, based on one single variable, it just makes a lot of sense.  $1T went into it, just about.  So that excitement is still palpable now.  People are still creating the white label this, that, all kinds of proprietary stuff that they think that they can do better than the asset manager, for example.  So, this is a blunt instrument on a single data.  Now, we’re going to try to throw in other data, the other data is just — what are we really doing?  Changing the mix ever so slightly on the glide path, as if by doing that, we’re going to differentiate the 42-year-old male from a 42-year-old female who have totally different risk appetite, totally different investment asset savings aspirations, and so on and so on and so on.  No, it will never do that.  So, custom is what I would call target date 1.5, maybe.  It’s not 2.0.  It will never be 2.0, if 2.0 means that we’re going to be able to custom on an individual level, where Ben will have something that’s more unique to him than somebody who is also Ben’s age but at a very different place.  

 Ben Jones – Last thought before we wrap this up – If you could put a warning label on your opinions and advice today, what would it say?  

 Philip Chao – Don’t do it at home, kids.  No, I think I would say this – I think we as fiduciaries need to think very clearly what our motivations are, because plan sponsors rely on us to serve in their best interest, and we really need to live up to that expectation.  It is so easy to deviate, and it is through incremental deviation, or corruption, whatever word you want to use, that gets us all in trouble.  So my final statement is – If you want government out of it, we all have to behave better.  

 Ben Jones – So, it all comes back to having better conversations, literally, so that we can understand the motivations of our clients, but also our own motivations, too.  When we understand what the sponsor is trying to accomplish, we can work towards finding the best solution to meet the needs of their participant population.  For show notes and links from this episode, including Phil’s paper Bull or Bull’s Eye, visit BMOGAM.com/betterconversations.  Thanks to Phil Chow for joining the show, and this episode was produced by Jonah Geil-Neufeld and the Freedom Podcasting team, as well as our team at BMOGAM, Pat Bordak, Gayle Gibson, and Matt Perry.  

Matt Smith – Thanks for listening to Better conversations. Better outcomes.  This podcast is presented by BMO Global Asset Management.  To learn more about what BMO can do for you, go to bmogam.com/betterconversations.  We hope you found something of value in today’s episode, and if you did, we encourage you to subscribe to the show and leave us a rating and review on iTunes.  And of course, the greatest compliment of all is if you tell your friends and coworkers to tune in.  Until next time, I’m Matt Smith.  

Ben Jones – And I’m Ben Jones.  From all of us at BMO Global Asset Management, hoping you have a productive and wonderful week.  

Disclosure – The views expressed here are those of the participants, and not those of BMO Global Asset Management, its affiliates, or subsidiaries.  This is not intended to serve as a complete analysis of every material fact regarding any company, industry, or security.  This presentation may continue forward-looking statements, and thus there is a caution not to place undue reliance on such statements, as actual results could vary.  This presentation is for general information purposes only, and does not constitute investment advice, and is not intended as a endorsement of any specific investment product or service.  Individual investors should consult with an investment professional about their personal situation.  Past performance is not indicative of future results.  BMO Asset Management Corp. is the investment advisor for the BMO funds.  BMO Investment Distributors LLC is the distributor.  Member of FINRA, SIPC.  BMO Asset Management Corp. and BMO Investment Distributors are affiliated companies.  Further information can be found at www.BMO.com. 

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