ADP, Morningstar Launch Managed Accounts for Small Business 401(k)s

The retirement divisions of payroll provider ADP Inc. and Morningstar Inc. have partnered on a managed account offering for small businesses, the firms announced Tuesday.

ADP Retirement Services and Morningstar Retirement Group announced the offering as a way of providing “personalized retirement investment and savings advice” to employees of all size companies.

ADP is offering its more than 100,000 plan sponsor clients Morningstar’s proprietary managed account service as well as adviser managed accounts that can be managed by third-party advisers; both use Morningstar methodologies to build investment portfolios and suggest savings rates and goals. The service then takes “discretionary authority” to manage the participant’s retirement account going forward. Fees will vary based on whether the plan sponsor elects to use the service as an opt-in or a default/hybrid-default option in their plan, a Morningstar spokesperson wrote via email. 

“Continued inflation and market volatility have made the need to help employees figure out how to maximize and invest their retirement savings greater than ever,” Brock Johnson, president of global retirement and workplace services at Morningstar Investment Management, said in a statement. “This is especially true in the small end of the market, where access to personalized advice within retirement plans is often limited.”

Consultancy Cerulli Associates’ forecasts that the managed account market will grow more than 13% over the next four years to reach $15.6 trillion. Despite growth, the higher-cost of providing managed account services continues to turn off some retirement plan advisers and plan sponsors. In its second quarter earnings report, Morningstar reported its first jump in uptake of workplace solutions managed accounts of 3.8% after showing declines in the prior three quarters.

Morningstar’s adviser managed accounts service allows for third-party registered investment advisers to offer co-branded managed account services to retirement plan clients. The data and investment firm’s flagship managed account services uses its proprietary portfolios and methodologies. In addition, ADP will make the adviser managed accounts service available to two retirement-focused RIA firms, with plans to add more.

“We think every retirement plan, no matter the size, should have access to personalized advice at scale,” Chris Magno, SVP and general manager of ADP Retirement Services, said in a statement.

ADP and Morningstar join other small plan providers that have partnered on managed account offerings. Plan provider Ascensus partnered with Franklin Templeton on an offering in 2022, and Vestwell partnered with Franklin Templeton on an adviser managed account offering in 2021.

ADP is the second largest 401(k) recordkeeper for plans of under $10 million as of the end of 2022, second to Paychex Inc., according to the latest data from PLANSPONSOR, which is a sister publication of PLANADVISER.