J.P. Morgan replacing retirement plan fund menu with portfolios

New approach divides fund offerings into a trio of goal-based portfolios

J.P. Morgan Asset Management today announced a new strategy that will consolidate the mutual funds currently available to retirement plan participants. The company’s dozen or so funds will be divided into a set of three portfolios employees can invest in.
The firm’s Core Menu Innovation strategy doesn’t take the place of a traditional target date approach, but is rather an option available to employees who prefer to design their own strategy using a menu of available funds. The average defined-contribution plan offers about 18 choices, and the typical do-it-yourself participant will choose about three or four of the options, according to J.P. Morgan.
Rather than leaving all the options on the table for participants to select individually, the new scheme consolidates individual stock and bond funds into diversified portfolios that are hand-selected by the plan sponsor and its consultant or adviser. Stable-value and money market funds are also pooled into a cash alternative portfolio.
The array of selections within a given portfolio could include real estate investment trusts, mortgage-backed securities and bank loans. Plan sponsors who feel uncomfortable with offering a certain type of asset class can exclude it, though, said Anne Lester, managing director and senior portfolio manager with J.P. Morgan Global Multi-Asset Group.
From that customized mix, participants can put together their own allocation, only selecting from the three portfolios.
The development and its fee structure are comparable to the customized target date fund offerings that are currently out on the market for the largest defined-contribution plans, J.P. Morgan executives said at a press conference in New York this morning.
The initial release will be made available for the “mega-plan” market. The firm has spoken to about a dozen such clients, according to John Galeteria, managing director and head of defined contribution investment solutions at J.P. Morgan Asset Management. Discussions about converting the current structure to the more streamlined version continue, he added. Plan sponsors will have to take into consideration how exactly they explain to participants the switch to portfolios from an array of funds.
Though it’s early in the game, the firm expects to eventually bring the solution downmarket after seeing how it fares among the largest plans. “As usual, this starts in the mega market, but we’ll work on ‘productization’ and how to get this to be the next level of choice,” said Michael Falcon, head of retirement for J.P. Morgan Asset Management in the U.S. “We want them to go here, regardless of plan size.”