Managed Account Services Require Careful Consideration
Managed account services are designed to provide customized retirement planning strategies for participants. Growing numbers of plan sponsors are embracing managed account services to help improve retirement outcomes, as the goal is to boost investment returns and help participants create a steady stream of income that will last them throughout their post-work years. However, a recent Bloomberg News article reminds plan sponsors who are thinking of offering managed account services for participants, or those who already do, that there are many important aspects of these services to consider.
The first is the type of managed account service being offered. In its most basic iteration, a managed account projects the participants’ income at retirement, then makes recommendations on their contribution rates and investment selection using the funds available in the plan’s investing lineup. However, the participant is ultimately responsible for pulling the trigger on the managed account’s asset allocation recommendations. These types of managed accounts are usually available at low or no annual cost to participants.
A more advanced version includes discretionary management, usually by an advisor to the plan. In this type of arrangement, the advisor chooses the funds from the plan’s investment menu and allocates the participant’s savings accordingly. Some products offer participants access to a financial professional who provides additional support, and some services can accommodate assets held outside of the participants’ current plan. Discretionary services are usually subject to higher fees, which are paid by the participant if they select this option.
The next thing for sponsors to consider is the managed account provider. There are a number of them, including Financial Engines — the largest provider of managed account services with $160 billion in assets under management — along with Vanguard, Voya, and Alight Solutions, among others.
In addition, managed accounts’ popularity is growing. A recent report from PlanSponsor found that more than 145,000 plans offered managed accounts in 2018, an increase of nearly 45,000 plans from 2011, and more than 9,000 from 2015. Additionally, nearly 3 million participants are using managed account services, an increase of nearly 1.3 million from 2011. Despite these statistics, managed account utilization rates are still low. Survey data from Cerulli Associates shows that managed accounts comprise roughly 4% of total plan assets.
Retirement plan providers are working on new strategies to improve managed account adoption rates and as more participants are expected to board the managed account train in the future. One strategy includes automatically transitioning participants from target date funds to a managed account once they reach a “triggering event,” like turning a certain age. Other strategies include implementing managed accounts as the plan’s qualified default investment alternative (QDIA) and improving participant communication efforts to increase their awareness and understanding of managed account benefits.
Fees are another aspect of managed accounts that plan sponsors need to be mindful of. Fee schedules for these services may vary, even within the same provider, according to the Bloomberg News article. Managed account services provide additional sources of revenue for retirement plan providers. In some cases, there are financial incentives from the provider to financial professionals for acquiring assets under management, and under certain service arrangements, managed accounts may impact plan administrative fees.
Plan sponsors should make sure they understand what services are being provided, how those services add value to the plan (if at all), and what, exactly, they are paying for.
Managed account services offerings may be a consideration for plan sponsors seeking new ways to improve participants’ retirement outcomes. However, in choosing a product and service provider appropriate for the plan, plan sponsors should consider a variety of factors, including the type of service being offered, which provider is offering it, potential incentive compensation arrangements, and the related fees. Managed account services offerings can be a powerful boost for retirement outcomes, but only if the services and related fees are appropriate for the plan and participants.
ARTICLE PRIMARY KEY PHRASE
“Managed Account Services”
ARTICLE Network – Plan Optimization
