Managed Accounts, By the Numbers

This January, managed accounts went business mainstream with an article in The Wall Street Journal declaring that “research suggests the services aren’t always worth the cost.”

In the retirement industry, views vary, but there is little doubt that managed accounts are increasingly in the conversation. Not only have managed account options proliferated in recent years, but fees have come down (a rallying cry for supporters), and, more recently, benchmarking is available to inform plan fiduciaries about accounts they choose to offer.

So how, in practice, are managed accounts being used among plan sponsors?

In a survey of 2,128 plan sponsors released this week by sister publication PLANSPONSOR, managed accounts appear alive and well in retirement plans across the country. More than one-third of sponsors say they are offering managed accounts to their participants, according to the 2024 Defined Contribution Benchmarking Report. Perhaps even more impactful: 16% have them as a default option for automatic deferrals.

Although managed accounts are now 20 years old, actual assets within them are still relatively small. Cerulli Associates, which tracks the account assets managed by the top nine DC providers, shows a market of $434.57 billion, as of the second quarter of 2023. As a comparison, the top 10 target-date funds in DC plans accounted for $1.74 trillion in assets at the end of 2023, according to Simfund, which, like PLANADVISER, is owned by ISS STOXX.

Steven Kaczynski, a managing director for fiduciary plan solutions at DBR & Co., says many of the firm’s clients offer a managed account, which the firm advises on and monitors. But Pittsburgh-based DBR & Co. does not generally view them as a default option, in part because the “value proposition” in the solutions available are not as attractive as options available in target-date funds, he says.

Where Kaczynski sees value in managed accounts is for participants who are in that “gray area” between those who would work one-on-one with a registered investment adviser and those who are fine leaving their savings in a TDF. The solution may give some participants “peace of mind,” with the additional fees for the service viewed as a kind of insurance.

“People like insurance even though, often, it’s expensive,” he says. “It helps them sleep at night and helps them generally feel protected.”

In this case, a managed account may feel like insurance from a bad asset allocation for their retirement savings or as if it is saving them from trying to constantly manage their own 401(k) if that is what they are after, Kaczynski says. As of now, however, he sees managed accounts as relatively “expensive insurance,” with participants potentially better off remaining in TDFs.

The Adviser Role

In the DC benchmarking survey, plan sponsors ranked third-party advisement on managed accounts as relatively successful (3.8 out of 5) in terms of providing useful services.

Kaczynski agrees with this notion, particularly if the adviser can help bar any options that may be better at gathering fees than producing the best results of participants.

“I appreciate the adviser role in the process of reviewing and selecting the right managed account service,” he says. “As an adviser, we should not be trying to sell a particular solution. … We see ourselves as someone who can help you review all of the potential solutions on behalf of clients. If managed accounts are something that they are interested in, then we can review the right ones or what’s available through the recordkeeper.”

Kaczynski notes that recordkeepers will often put forward a managed account offering that they provide with a fee concession. He said, like any offering, it can be reviewed by an adviser on its merits, but there should be caution about a product being pushed due to revenue incentives.

In many cases, he says, a lower-fee target-date fund will serve the needs of participants, and when adjustments are requested or needed, that can be done through choosing a different TDF or using a customized model.

“Target-date funds almost feel underrated at this point,” Kaczynski says. “Target-date funds as the qualified default alternative solve for a lot of the issues with engagement and providing information and just generally make sure there is appropriate asset allocation.”

At DBR & Co., Kaczynski says the firm also offers its own risk-based models to participants who do not want to use the default option. He says DBR & Co.’s models can often provide a low-cost, personalized option that does not require a managed account. The offer is not revenue-generating for the advisory, he says, but the funds are already being selected and managed, so it is relatively easy to offer as part of a plan service model.

Finally, when it comes to participant advice, Kaczynski says the firm has noted a curious thing of late: Participants want to speak with a knowledgeable human.

“What we’re seeing more and more is that people just want to talk to a person,” he says. “We’ll provide education, what we call office hours, and that seems to be the most satisfying for everyone all around. They often might leave the conversation just sticking in the target-date [fund] they were already in, but just feeling a lot better about it.”