The 5 Essentials for Guiding Participants Toward Retirement Readiness


At GuidedChoice, we believe plan sponsors should be able to plug advice into their plan, without upsetting their existing plan menu. They should be confident that the advice is free of conflicts, and that it treats participants as unique individuals — participants deserve more than an asset allocation schedule determined by their age. They deserve first-rate wealth planning advice that is affordable for even the smallest plans. Advice that allows them to sustain their quality of life and pursue retirement ambitions, while taking an appropriate amount of risk. 

We understand what is essential to guide participants to retirement readiness:

  • Advice that accounts for savings rate, time horizon, and asset allocation
  • Built-in safeguards to mitigate the risk of common errors
  • An emphasis on asset allocation over fund selection
  • Portfolios built from any investment lineup
  • Personalized advice that can evolve

Advice that accounts for savings rate, time horizon and asset allocation

People tend to focus too much on asset allocation. Retirement planning outcomes depend on savings rate, time horizon, and asset allocation. Change any of those three levers, and you might change recommendations for the other two. Generically, a time horizon implies a specific asset allocation — the one with the best reward for risk over that time span. Given a person’s other wealth, income, and savings rate, the generic allocation might not be enough for that person to reach their goals. In that case, we might alter advice based on savings rate, allocation, or time horizon.

Built-in safeguards to mitigate the risk of common errors

We build in several safeguards to our process to mitigate optimism bias and model error. Such safeguards include:

  1. We validate our capital market assumptions (CMA) by comparing them with peers’ CMA
  2. We constrain asset class weights to prevent portfolios concentrated in one or two risky asset classes
  3. We confine the efficient frontier to the segment where the geometric return is rising
  4. When we simulate projections of future asset and income levels, we interpret the results pessimistically

The first and fourth safeguards guard against model error. The second, third, and fourth guard against optimism bias, especially on the end client’s. Since we allow a client to scenario plan and select a different allocation from what we recommend, it is imperative we do not permit a client to take on ill-advised risk, and these constraints protect a client from doing so.

An emphasis on asset allocation over fund selection

Investment firms’ advertising and financial media would have you think that selecting the right fund is a) possible, and b) important. We don’t think so. We see investment funds as if they were tiles to be used in a mosaic, where we are creating a picture of the client’s ideal asset allocation.

Aside from the maxim that lower cost funds are preferable to higher cost funds, in a diversified multi-asset class portfolio, fund selection per se is far less important than the asset class mix. So rather than emphasize the (often) futile practice of picking funds to outperform, we emphasize getting the combination of funds that behaves most like the desired asset class mix, given the funds’ costs. 

Portfolios built from any investment lineup

We designed our advice to work with whatever investment lineup a plan has, regardless of brand names or vehicle types. We are agnostic. This affords us the ability to create portfolios out of any investment lineup, regardless of the brands of funds available. That is a large reason our approach has enabled us to scale across over 27,000 plans.

Personalized advice that can evolve

As time rolls on, things change. A person’s situation might not evolve as modeled. Thus, we make our best approximation at the time, recognizing that the best approximation will change later. Given more detailed information about the person, we may shift away from the generic time horizon-based allocation, recommending a lower or higher equity allocation as appropriate. Similarly, we may recommend a higher savings rate, and even recommend the person retire later. As a result, the three-dimensional solution for participants with identical horizons may be different.

We’ve got this.

Planning for retirement is complex. Nobody was born knowing how to do it. Even people who work in the investment industry can struggle to do it well.

It can be confusing for a plan sponsor to figure out how to best help its participants retire securely. It can be overwhelming for a participant to digest all available information and make an appropriate choice. Too often, they see their task as being one of choosing from the investment menu, without considering whether they should save at a different rate or aim for a different retirement age. Our solutions alleviate these challenges for both plan sponsors and participants. 

This is not a new activity for us. Since being established in 2000, GuidedChoice has helped over 2 million customers and now manages over $15 billion in assets. 

We know how to deliver what is essential for plan sponsors and participants.