Retirement date funds target ‘do-it-for-me’ clients

Investors will be able to choose their target date of retirement, rather than a preferred asset allocation, as part of a series of new funds that are counting on individuals bucking the do-it-yourself trend in investments.

But the new funds are unlikely to prove popular with the clients of financial planners, with their creator, Russell Investment Group, acknowledging they are most likely to attract people with smaller investment balances who are unlikely to seek advice.

The diversified, multi-manager products will give investors the option of choosing a fund based on their target date of retirement. Russell will then incrementally adjust the asset allocation of the fund, from growth oriented to conservative, over the lifecycle of the investment.

Initially, four funds will be offered, for those who are planning to retire around 2010, 2020, 2030 or 2040. Russell would consider adding additional funds, with five-year retirement date intervals, based on the success of the first four funds.

The idea originated in the US, where target date funds have gained momentum since they were first introduced in the mid-1990s. In the 12 months to July this year, some $60 billion flowed into target date funds in the US.

With the introduction of super choice in Australia, investors were suffering from “choice overload”, Russell’s managing director of individual investment services Heather Dawson said, creating a desire by many to hand over responsibility in areas such as asset allocation to experts.

Dawson said advisers in the US had initially felt threatened by the idea that a fund manager would take over the asset allocation decisions of their clients, but quickly realised that some clients, who were unlikely to seek advice or did not warrant close attention by planners, could be suited to these types of funds.