‘Cradle to grave’ target date funds could solve advice gap

The first range of retail UK target date funds has been launched by the Axa Group and BirthStar.

The Architas BirthStar Target Date funds are managed by AllianceBernstein, an Axa Group subsidiary that runs institutional business in the UK.

The funds are set up to pool investors of the same generation – or five-year “vintages” – into funds that are then managed over their lifetime to dial down risk as they approach the date when the money will be drawn out.

The funds will predominantly be used for retirement, but can also be used for other goals such as to save for a child’s education.

The funds cost 55 basis points plus a platform fee.

BirthStar managing director Henry Cobbe says the problem with current investment products is they are “too complex and expensive or too simple and expensive”.

“I looked at how to cut through that to focus on outcomes and give people a cradle to grave fund so those who don’t have the confidence to make investment allocation decisions or don’t have access to advice and still want to put their investments to work.”

Architas business development head Cedric Bucher says the RDR created the “advice gap” of perhaps 5 million Britons who are now without advice, especially after the banks’ retreat from advice.

“[Target date funds] are a solution. They are a one-stop solution – you could even call them the autopilot of investing,” he says.

“The regulator is supporting the industry to be innovative and I sense an increase in the level of guidance that can be given before it can be considered advice.”

AllianceBernstein sales and client relations managing director Tim Banks says target date funds differ from lifestyle funds because where lifestyle de-risking is “algorithmic” with funds moved into different funds at specific moments regardless of reality, target date allocation is managed within the same fund at the discretion of the manager.

Cobbe agrees: “[Lifestyle funds] are mechanically switched at certain times. It’s an administrative process, not a managed process.

The funds aim to return CPI plus 4 per cent annualised across their lives, with the return dropping with the risk to about 1 per cent above inflation by the target date.

Architas, the authorised corporate director for the range, will also help with branding and distribution.

AllianceBernstein runs money worldwide with $473bn under management and has operated target date funds in the US since 2005.

It is 60 per cent owned by the Axa Group which wholly owns Architas as well.

In the UK, it has run target date funds as the default for three master trust pension schemes since 2009.

BirthStar is a financial technology business founded in 2012 to make investing more accessible and relevant to end investors. Cobbe has worked for Schroders, Thames River Capital and Nevsky Partners.