The retirement space is in a cycle of constant evolution. Assessing where we’ve been – and where we’re going – means understanding the expectations of today’s participants as well as the changing regulatory landscape and available technology.
In the Beginning
When 401(k) investments first appeared in the 1980s, there were three main choices for participants – cash, bonds, and equity. These limitations were due to a domination of the market by insurance companies that had little to offer by way of advice or guidance. The late ’80s and early ’90s saw the rise of mutual funds, which expanded on the limited investment choices first offered but still married a participant to one company.
The mid-1990s brought about the pioneering of open architecture, giving participants the opportunity to choose from multiple mutual funds in their 401(k). The result was a variety that allowed a retirement plan to include the best of investment choices in different asset classes.
It was during this time that my first firm, National Retirement Partners, excelled. Using the open architecture model, I drove platforms like Fidelity from using 100% proprietary products, to at first allowing up to 25% from an outside plan, then 50%, then ultimately 100%. My vision of open architecture allowed participants to have better choices, which allowed them to make better decisions, which hopefully led to a more successful retirement plan.
This exciting and uncharted territory wasn’t without its challenges, however, and suddenly participants were presented with what some perceived as too much choice. A new participant, for example, with little understanding of the market might sign up for a 401(k) and find themselves presented with two dozen choices.
The Rise of Target Date Funds