Today, nearly 80% of new flows into retirement plans go to target-date funds (TDFs). There's good reason for that, as we in the business see very clearly. TDFs are easy, they're readily available, and they allow participants to "set it and forget it."

For risk-averse investors, in particular, it's easy to see the attraction of TDFs, which are designed to outpace cash over a long period of time. Cautious participants who move from a 100% cash position to a TDF, arguably, are choosing a better alternative.

We believe, however, that no automatic investment approach can take the place of traditional investment advice and active management. That's especially true when it comes to retirement plans, to which advisors can add more value than in almost any other aspect of their business. Retirement plans are the cornerstone of investors' financial stability, and TDFs are becoming increasingly popular within direct-contribution plans. But, quite frankly, "set it and forget it" might get investors only so far. Take, for instance, a typical 2030 TDF inside of a retirement plan. An investor buys it; that's a good start, definitely better than cash. The TDF is designed for 18 years on the horizon, so the investor knows what he or she can expect. For the next 18 years, the asset mix of his/her portfolio automatically will reset in accordance to the selected time frame and accompanying risk level. So, too, will the portfolios of every other investor who picked the same target date. While investors may find it appealing to put their retirement decisions on autopilot, the one-size-fits-all approach may have its limitations.

• Take into consideration any of the individual's outside investments. If, hypothetically, an investor has a significant overweight in international stocks outside of his/her retirement plan, it might not make sense to have a TDF with a large weighting outside the United States.
• Consider the assets of the rest of the household, including the holdings of a spouse.
• Recognize the fact that people's lives change, sometimes quite dramatically. These changes might affect their investment strategy.

In short, when it comes to TDFs, the limitations could offset their merits, depending on the investor.

The value of an advisor who thoughtfully considers the investor's entire financial situation cannot be underestimated. Few would argue that the environment for investing is becoming more complex and challenging. Given the challenges the nation faces with Social Security funding and the slow death of traditional defined-benefit plans, which put more of the initiative on the individual, careful attention to one's retirement plan is critical.

Remember, when an advisor has the flexibility to help formulate, construct, implement, and monitor an investor's financial plan, it is easier to make adjustments when situations change. Investing is as emotional as it is mathematical. The past five years have been a testament to that. Helping individuals fully understand the principles of saving, diversification, discipline, and market behavior helps them stay on the investment rails over the long run. Having the capability and understanding to make adjustments is most certainly a necessary component for investors' long-term success. While a TDF may be better than some other investment alternatives, it doesn't replace good old-fashioned advice and stewardship.

— Frank Paone, Lord Abbett Director of Retirement Platform Sales