Position target date and target risk funds to help members find the right fit
Our ReDefined Contribution Plans 2021 Watch Your Language study took a closer look at the language of defined contribution plans.
Our second key insight revealed that plan members continue to be very interested in both target date funds and target risk funds. This sentiment is consistent with findings from our US 2019 Forgotten Participant study.
Alongside Maslansky + Partners, we conducted in-depth interviews with seven US plan sponsors and connected with over 600 Canadian plan members through online surveys.
So how can plan sponsors use language to position these offerings and help plan members find the right option?
We found that 65% of plan members surveyed, preferred the option of investing in both target date and target risk funds compared to single asset class options. Offering all three lets them choose an option that meets their unique investment needs.
Next, we found that to differentiate target risk funds on the menu, using short, easy-to-understand descriptors that are goals-based was most compelling.
Furthermore, when plan members were asked to rank the most appealing benefits of both target date and target risk funds, diversification was the most compelling benefit overall. When taking a deeper look, we found preferences that differed among each generation.
Finally, when it comes to the language of investing, plan members gravitated towards jargon-free terminology. They prefer hearing that their money is being “managed” by “financial experts,” rather than having their portfolios “constructed” by “institutional managers.”
To learn more about the findings of our 2021 Watch your language research study, visit our website, or contact your Invesco DC professional.
Our 2021 Watch Your Language study took a closer look at the language of defined contribution (DC) plans. Alongside word specialists, Maslansky + Partners, we conducted online surveys with 610 DC plan members working for large employers in Canada. The study focused on the impact language can have on members’ overall understanding of the plan’s investment menu, professionally managed options, and how best to communicate retirement income.
There’s clear interest for both target date funds (TDFs) and target risk funds (TRFs) on the investment menu: Almost 65% of plan members we surveyed preferred these professionally managed options compared to single asset class options. Offering all three categories on the investment menu allows employees of all ages to choose an option that appeals to them most.
When ranking the top benefits of both TDFs and TRFs, members cited “fully diversified” as the most compelling benefit (31%), with “automatically rebalancing” least compelling (14%). As for who they wanted to manage their retirement investments, and the best way to describe what they do, members wanted their money to be “managed” by “financial experts” or “investment managers, ” with “institutional managers” who “construct” their portfolios coming in dead last. Ultimately, we found that members prefer plain-spoken language and are turned off by industry jargon.
So, what’s the best way to position both TDFs or TRFs on the investment menu for better understanding? Simple framing makes it easier for members to compare investment options. Use short, easy-to-understand descriptors, and consider a goals-based (versus time-based) approach to differentiate target risk funds on the menu.
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We connected with over 600 defined contribution (DC) plan members who shared their views through an online survey. Our goal was to gain further insight into how language can impact plan members’ overall understanding of the plan’s investment menu, professionally managed options within the menu, and how to create retirement income.
