American Funds video transcript: “Is Passive the Safer Fiduciary Choice?”Craig Duglin:
Is a passive target date solution superior from a fiduciary perspective?
The simple answer is no. There is no fiduciary pass for selecting passive over any other options. Fiduciaries are held to a standard to go through a selection process, to identify the right fit for their participants, and that should be driven with the consideration of outcomes for their participant base.
So the fiduciary due diligence bar is equally high for active or passive investing. What are some of the specific risks or challenges with passive investing in a target date series?
Plan sponsors still need to identify the most appropriate glide path, whether it's active or passive target date funds. And if a plan sponsor does choose passive, they are still very much exposed to market volatility. They don't have as much by way of the opportunity to protect on the downside, as well as the fact that they may be missing market opportunities where active management really has opportunity to add value. Now from the selection standpoint, there's still a very complicated selection process because of the different vehicles that are available as well as the different strategies that a passive manager might implement to try to replicate an index.
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