Target Rate Funds
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Retire With Confidence
Avoid the Uncertainty of Target Date Funds
Why ERO?
ERO provides next-level forecasting and consulting to optimize Mutual Funds, ETFs, and Retirement Plans for better performance, better risk management, and more reliable retirement outcomes. Discover how Target Rate Funds, powered by ERO’s cutting-edge technology, can help achieve retirement goals and fulfill fiduciary responsibilities.
Active Management Verification
We are the only firm in the financial services sector that can statistically determine if active managers add value to an all-passive portfolio. This capability ensures that you only pay for active management when it provides tangible benefits, enhancing fiduciary liability protection.
Evolution of Modern to Post-Modern Portfolio Theory
The Journey from Harry Markowitz to Downside Risk Optimization
The world of investment theory has undergone significant transformation since the 1950s.
Transforming Fiduciary Services with Advanced Financial Technology and Comprehensive Risk Management
- Fiduciary Excellence
At ERO, we leverage advanced financial technology to revolutionize retirement planning. Our proprietary tools are designed to empower fiduciaries—whether financial advisors, plan sponsors, or trust administrators—to navigate complex financial landscapes with confidence. By focusing on Target Rate Funds, we ensure that retirement strategies are aligned with participants' specific needs, not just based on age or risk tolerance.
- Comprehensive Risk Management
Address critical risks such as low-performing investments and excessive administrative fees, mitigating factors that trigger class-action lawsuits.
- Empirical Optimization
Leverage ERO's unique capability to statistically validate the value added by active managers in passive portfolios, justifying the use of higher-cost investment strategies and reducing fiduciary liability.
Our Services
At ERO, we offer a comprehensive suite of services designed to help fiduciaries and participants achieve their retirement goals through innovative and effective strategies. Our services include:
Target Rate Funds Construction
Collaboration with Current Plan Advisors
We work closely with your current plan advisors to construct Target Rate Funds using your existing lineup of investment options. Our approach ensures that the funds are tailored to the specific needs of participants, optimizing returns to meet future liabilities.
Q Check
To ensure ongoing alignment with evolving needs and market conditions, our system performs a quarterly re-evaluation of each Target Rate Portfolio—what we refer to as "Q-Check." During this process, each fund selection is assessed for adherence to critical elements such as style category, Upside Potential Ratio, Target Rate Alpha, and other key optimizer metrics. If a fund fails to meet all these critical criteria, it is automatically replaced by another fund that does. If an active manager cannot be identified to replace the one being removed, we will immediately use its passive alternative to maintain the portfolio's integrity.
Plan Asset Management
Outsourced Chief Investment Officer (OCIO) Services
Acting as an OCIO, ERO provides expert management of your plan assets. We utilize our advanced forecasting technology and academic insights to navigate complex markets, ensuring your plan is aligned with both fiduciary standards and participants' retirement goals.
Plan Transformation
Hybrid Defined Benefit Plan Creation
We can assist in transforming your current defined contribution plan into a hybrid defined benefit plan. This hybrid approach aims to combine the flexibility and participant control of a defined contribution plan with some of the structured benefits of a defined benefit plan. By identifying the specific return needed on current assets to meet future liabilities, we strive to create a more stable path toward retirement.
Why Choose ERO's Services?
Our team collaborates with your existing advisors, integrating seamlessly into your current plan structure to enhance investment strategies without disruption.
As an OCIO, we bring a higher level of expertise and oversight to your plan, ensuring proactive risk management and strategic asset allocation.
Our hybrid defined benefit plan solution offers a balanced approach, combining elements of defined contributions with features traditionally associated with defined benefits, to enhance retirement planning.
All our services are backed by rigorous academic research and advanced statistical models, ensuring that every decision is informed and optimized for success.
Financial Advice for 401(k) Plan Participants
Target Rate Funds represent a significant evolution in retirement plan management, moving from a one-size-fits-all approach to an asset-liability approach. By focusing on the specific return needed to meet future liabilities, Target Rate Funds ensure participants stay on track to achieve their retirement goals, regardless of market conditions or changing personal circumstances.
Target Rate Funds help participants achieve their retirement goals by determining the return needed on current assets to meet future liabilities. This approach allows for a clear, purpose-driven strategy tailored to each participant's unique financial situation.
- Enhancing participant experience by focusing on long-term needs.
- Providing clear financial direction based on real net worth.
- Regularly reassessing and adapting strategies to keep on track.
Target Rate Funds vs Target Date Funds
| Target Rate Funds (TRFs) | Target Date Funds (TDFs) |
|---|---|
| Introduction | |
| Calculates returns needed to meet future payout requirements, considering individual circumstances. | Uses standardized asset allocation based on projected retirement dates. |
| Personalization | |
| Tailors investment strategies to individual circumstances, financial goals, and retirement needs. | Applies a one-size-fits-all approach for participants with the same retirement date. |
| Goal-Oriented Planning | |
| Enables setting specific retirement objectives based on income replacement needs and desired lifestyle. | Relies on projected retirement dates, potentially overlooking individual retirement goals. |
| Portfolio Navigation | |
| Dynamically adjusts portfolios based on the gap between current assets and future needs. | Follows a predetermined asset allocation path with limited flexibility. |
| Flexibility | |
| Adapts to changing market conditions and individual circumstances. | Offers limited flexibility to adapt to changes. |
The Calculator
Use Essential Returns’ Portfolio Construction Calculator to determine the optimal investment strategy for retirement plan participants. Variable data points can be used to adjust a portfolio's return parameters. Essential Returns’ Calculator uniquely adjusts equity exposure to achieve a participant’s financial goal.
The calculator’s data point flexibility also makes it an ideal tool for navigating quarterly investment adjustments when necessary.
Unlike inflexible “Risk Tolerance” questionnaires where participants have to analyze their feelings, the following adjustable data points are straightforward and easy to determine, generating a variety of retirement investment scenarios. Below are the inputs that identify the return needed to meet future liabilities:
- Income
- Contributions
- Liabilities
- Target Age
- Life Expectancy
Once this information is gathered, the calculator will provide the participant with the optimal portfolio that offers the best opportunity to meet or exceed the return needed to replace the desired percentage of income at retirement.
The Optimizer
The Optimizer identifies optimal portfolios by incorporating academic breakthroughs and advanced statistical models. It ensures that each portfolio is tailored to the specific needs of the investor, rather than relying on age or risk preferences.
- Analysis at Scale.
- Our optimizer is capable of analyzing thousands of mutual funds and ETFs.
- Returns-based analysis.
- Using William Sharpe's returns-based style analyzer, we can determine how the manager is achieving their returns.
- Benchmark optimization.
- Our optimizer constructs a customized benchmark for each manager, using passive indices that precisely reflect the manager's return style. This allows us to determine if the active manager can add value over their customized passive benchmark.
- Forecasting.
- The optimizer forecasts the returns of active managers one year ahead using Bradley Efron's bootstrap methodology, which generates over 2,500 annual returns of not only what did happen but what could have happened.
- Weighted Evaluation.
- Applying Peter Fishburn's utility theory under uncertainty, our optimizer penalizes managers twice as severely for underperforming their benchmark compared to exceeding it.
- Risk-Adjusted Return Analysis.
- Incorporating Daniel Kahneman's behavioral theory regarding human judgment under uncertainty, our optimizer subtracts 3 units of return for every unit of risk an active manager takes.
By implementing these rigorous analyses, we make it challenging for active managers to come into the solution. However, those who do have been thoroughly vetted using the expertise and insights of the world's top financial experts. This approach provides a higher degree of fiduciary protection compared to other methods, ensuring that only the most capable and consistently performing active managers are identified.
About Us
Our powerful optimization software was built by Frank Sortino, founder of the Pension Research Institute, with contributions from several highly acclaimed academics. These include Nobel Prize recipients William Sharpe and Daniel Kahneman, Presidential Medal of Honor for Science recipient Bradley Efron, and Peter Fishburn, the John von Neumann Theory Prize winner in Mathematics.
Our Belief
We aim to revolutionize retirement planning, making it more precise, reliable, and participant-focused. We are dedicated to setting a new standard in the industry, one that prioritizes the financial well-being and future security of every individual we serve.
Key Tenets of Our Belief
We prioritize the individual needs of participants, ensuring that each retirement plan is customized to align with their specific financial goals and liabilities.
Our solutions are grounded in rigorous academic research and statistical analysis, eliminating guesswork and providing a solid foundation for investment decisions.
By integrating insights from renowned academics and Nobel Prize recipients, we offer unparalleled protection and guidance in navigating complex and volatile financial markets.
We believe that Target Rate Funds are the key to helping participants reach their retirement goals. By focusing on the specific return needed to meet future liabilities, Target Rate Funds provide a clear, purpose-driven strategy that adapts to changing market conditions and individual circumstances.
We believe in transparency and adaptability, regularly reassessing and adjusting strategies to reflect changing market conditions and participant circumstances.
Our focus is on achieving long-term retirement security and growth, ensuring that participants can retire with dignity and confidence.
Participant-Centric Approach: We prioritize the individual needs of participants, ensuring that each retirement plan is customized to align with their specific financial goals and liabilities. | |
Data-Driven Decisions: Our solutions are grounded in rigorous academic research and statistical analysis, eliminating guesswork and providing a solid foundation for investment decisions. | |
Proactive Fiduciary Protection: By integrating insights from renowned academics and Nobel Prize recipients, we offer unparalleled protection and guidance in navigating complex and volatile financial markets. | |
Target Rate Funds: We believe that Target Rate Funds are the key to helping participants reach their retirement goals. By focusing on the specific return needed to meet future liabilities, Target Rate Funds provide a clear, purpose-driven strategy that adapts to changing market conditions and individual circumstances. | |
Transparent and Adaptable Strategies: We believe in transparency and adaptability, regularly reassessing and adjusting strategies to reflect changing market conditions and participant circumstances. | |
Long-Term Security and Growth: Our focus is on achieving long-term retirement security and growth, ensuring that participants can retire with dignity and confidence. |
Our Goal
To use applied scientific research, mathematical algorithms, and an award-winning approach to strengthen the investment process, eliminating guesswork and improving investor performance.
At ERO, we believe that effective retirement planning is a cornerstone of financial well-being and security. Our commitment is to leverage advanced scientific research and cutting-edge technology to provide fiduciaries with tools that not only meet but exceed industry standards.
Our Values
We are dedicated to upholding fiduciary responsibility by removing emotional subjectivity from the service and replacing it with objective analytics, focusing on real needs and producing better results for participants.
Connect with Us
As an investment advisor, plan sponsor, or trust administrator, you play a crucial role in guiding your plan participants toward their retirement goals. At Essential Returns, we're here to help you design tailored investment solutions that align with your participants' specific needs and objectives.
By partnering with us, you can enhance your plan's investment options and ensure that your participants are on the right path to a secure retirement.
Reach out to us today to learn how we can support you in achieving these goals.
- Address
- 28352 Avenida La Mancha
San Juan Capistrano, CA 92675 - Telephone
- +1 (949) 481-5051