Built-in Diversification

Lifecycle and lifestyle funds are gaining popularity with independent advisors, according to a poll conducted by Russell Investment Group, based in Tacoma, Washington. The poll showed that advisors who recommend these funds do so because they enable advisors to offer clients “built-in diversification,” “ease of use” and “automatic rebalancing,” while at the same time offering advisors “ease of administration.” Russell defines lifestyle funds as “static asset allocation funds based on risk tolerance,” and lifecycle funds as “dynamic asset allocation funds with respect to a specific retirement date.”

The survey, “Financial Professionals’ Attitudes and Perspectives Regarding Lifestyle/Lifecycle Products,” showed that 76% of advisors who took the poll offer these types of funds to clients. For clients whose primary investment goal is retirement, 72% of the advisors reported an overall increase in the amount of defined contribution (DC) assets they directed to lifestyle/lifecycle funds, with 42% of thee group recommending that clients place 1% to 20% of their assets in those funds. The majority of the advisors, 62%, also said they directed more of clients’ non-DC assets to lifecycle/lifestyle funds, with 36% recommending that clients place 21% to 40% of their assets in the lifestyle/lifecycle funds.

It’s no surprise that advisors are picky about which lifecycle/lifestyle funds they choose to recommend to clients. When rating characteristics about the funds themselves on a scale of “not important at all” to “very important,” 58% of the advisors said the investment process was “very important,” 52% said asset allocation was “very important” and 50% said the underlying manager selection process was “very important.”