According to Fidelity Investments, the use of their managed accounts service is booming with employers using it to recruit and retain employees. But a lack of education is holding some back as is the misuse of target date funds, according to the industry’s largest independent managed account provider.
Assets in Fidelity’s workplace and retail managed accounts reached $212 billion with assets in DC plans growing by 34% in 2015. New plan sponsors offering managed accounts grew by 21% last year to a total of 3,861 companies with enrolled participants growing by 46%. Employers see the benefits with 51% indicating that managed accounts help retain employees and 49% using it to recruit new talent.
Fidelity is the largest defined contribution (DC) industry’s record keeper by assets and one of the largest target date fund (TDF) providers. But they have lost top TDF position recently and some see their use of managed accounts as a way to retain TDF assets for those companies that might be attracted to other provider’s TDFs.
According to a recent study conducted by Financial Engines (FE), the industry’s largest independent managed account provider, and Aon Hewitt, most people misuse TDFs because there are designed to hold all of an investor’s assets. Yet FE concedes that managed accounts can be useful to some TDF investors:
TDFs appear to be most effective for younger investors with low asset balances and others with less complex financial needs. Advisory services, including managed accounts, can better address the needs of investors who have greater financial complexity outside their retirement accounts by providing portfolios that are diversified across multiple funds, offer greater personalization including a range of risk levels, and the ability to speak with financial advisors about various retirement needs.
The issue with managed accounts is getting investors engaged as well as costs according to a GAO report. Though TDFs are more popular because they do not require investor engagement, experts predict that more personalized services are more useful using readily available data from record keepers as well as from other sources. Perhaps the results by companies and participants on Fidelity’s platform show that a motivated provider can move the needle on managed accounts.
