As the target-date fund industry works to raise its standing with investors, a recent Vanguard survey finds that much of that work might already be done.

The study, “Investor Comprehension and Usage of Target-Date Funds: 2010 Survey,” released Wednesday, found that most investors understand basic design elements of the instruments. They also are aware of their attendant investment risks. Vanguard polled 4,700 investors in January for the study.

The study drew responses from investors who owned individual retirement accounts (IRA) and those who participated in workplace-sponsored retirement plans and presented the results separately. Some 80% of IRA respondents and 68% of plan participants said target-date funds have a diversified mix of stocks and bonds. Also 93% of IRA respondents and 77% of plan participants said the asset allocation in the funds becomes more conservative over time.

As for what happens after the target year, 63% of IRA holders and 41% of plan participants knew that they could keep investing in the fund beyond that year.

Less than 1% of workplace-sponsored plan participants thought that target-date funds were risk-free. Just 2% of IRA holders and 4% of plan participants thought TDFs offer guaranteed returns.

John Ameriks, head of Vanguard Investment Counseling & Research, who oversaw the study, says the findings offer encouraging signs that, “U.S. investors are not the lumps they are often made out to be.”

Vanguard acknowledged that investors have a lot more to learn about the products. In one finding, 29% of IRA holders and 24% of plan participants knew the asset allocations could keep changing after the target year. As Vanguard reiterates in the study, most TDFs continue to change their asset allocation for a number of years past the target year.

The survey sample probably reflects the knowledge of more self-sufficient investors, given Vanguard’s target audience and low-cost approach to offering investment products, John Carl, president of Retirement Learning Center, a New York City-based educational and consulting group, said in a telephone interview on Wednesday. 

“I’ve seen more plan sponsors getting feedback from participants that they do not understand investing in general and want something beyond education,” Carl said. “They want explicit advice.”

Yet the study does present opportunities for financial planners and other independent advisors, Carl said. “The fact that they are aware of the basics does not get anywhere near whether the investment is suitable,” he said.

Carl said the company is seeing more situations where plan sponsors—including those that use Vanguard products—are engaging with independent advisors to give employees more attentive advice about using target-date funds.

At Vanguard, Ameriks said the company is not trying to replace the role of a financial advisor, but for a lot of investors, using target-date funds offers a sound starting point for retirement planning.