Advisers Turn to Managed Accounts as Demand for Customized Plan Design Options Grows

As demand for customized plan design options continues to grow, plan sponsors are increasingly embracing managed accounts as a solution within their plans.

More than a quarter of plan sponsors queried by Fidelity Investments said they were planning to introduce more managed account options into their fund lineup this year. Some plan sponsors are going even further, making managed accounts the qualified default investment alternative (QDIA) for some or all participants.

Fully 87% of recordkeepers had managed accounts available on their platform, and another 7% planned to offer them in the next two years, according to Cerulli.

“We are taking managed accounts out to all our clients and saying that this is the next generation, or the evolution, of plan advice in the 401(k) and 403(b) environment,” says Brad Arends, cofounder and CEO of Inellicents, Inc., in Albert Lea, Minnesota. “There continues to be a building interest in employers taking a hard look at this, and they’re doing it more so than in the past.”

That increased interest reflects technological advances, a growing recognition of the complex, heterogenous needs of plan participants as they approach retirement, and a steadily declining price point for managed account services.

“Not every adviser [has] made the shift toward managed accounts, but all of the big advisers have,” Arends says. “We have all looked at this and said, ‘This is in the best interest of participants.’ It really is the best way to move the dial and improve the participant’s overall outcomes.”

Moving down market

Like many innovations in the retirement space, managed accounts began with more broad adoption at large accounts, and smaller employers are now increasingly considering them as a solution..

“They continue to move down market as the technology becomes more efficient and more cost effective,” says Ted Samsel, vice president, business development, Ascensus. “And there’s also been a [COVID] phenomenon, where people are more willing to do things remotely, and see them executed in a digital format.”

However, in plans where the managed account is not the default, adoption is not always widespread. Just 7% of participants with Vanguard accounts use managed accounts. The median age of a managed account user is 49, and they have an average account balance of just over $200,000, according to Vanguard’s How America Saves survey.

In many cases, advisers are uniquely positioned to help spread the adoption of managed accounts, since they may already have personal relationships with participants, which they can use to help overcome the barriers of participant engagement.

When managed accounts are not the default option, plan advisers are in an ideal role to help participants understand whether the managed account is right for them, says Lisa Painter, a senior consultant with Financial Finesse. That’s particularly true for those advisers who are already on site, providing one-on-one or group education to participants.  

Such outreach and education are key to the success of managed accounts, Painter says.

“You cannot just put a link out there and send one communication,” she explains. “You have to have a strategy.”

The appeal of customization

Even with adviser assistance, it can take some work on the participant’s part to input all their information into their managed account, but doing so can create a more customized experience, further driving engagement.

“Whether you’re entering information about outside savings or nonqualified money, it can really make a huge difference,” says Terry Burns, managing director of capabilities for the retirement services division at OneAmerica. “The more it can help the participant to personally drive their best retirement outcomes, the better the service will be, and then we see the engagement go up at the participant level.”

That’s important for older participants who are close to retirement and may have a more complex financial picture, but it’s also important for younger participants who may expect personalization from financial services firms just as they expect it in other aspects of their consumer life. Managed accounts also provide more guidance to plan participants who may not have enough assets to pay for full-service wealth management.

“As the workforce changes and evolves, retirement plans are going to keep on getting more and more personalized,” Painter says.

Recordkeepers can assist with such efforts, helping advisers target and personalize communication to participants, and sharing relevant information about participants that an adviser can use to further tailor their services. Burns says he expects the shift toward increased personalization to continue as managed accounts become an integral part of overall financial offerings.

Playing a larger role

The introduction of adviser-managed accounts also give advisers more control over the investment options that best make sense for a participant or a plan. That, in turn, has led more advisers to embrace them as a viable product for their clients.

“With adviser-managed accounts, advisers really have become part of the solution,” says Josh Rundle, head of product development, workplace solutions at Transamerica. “Now, firms are jumping in with a higher level of interest, with some looking at whether they can own some of the experience and play a larger role.”

The recent market volatility also helps make the case for managed accounts.“

Advisers are talking to participants about how there are up markets and down markets and inflationary periods, which we are going through right now,” Samsel says. “But participants feel more comfortable and less urgency to go in and make an investment change because something is happening in the markets, or with interest rates or the economy if they know there is a professional organization looking at their portfolio as a long-term investment and making sure those investments are refined.”

In addition to asset allocation, which target-funds address, managed accounts can solve for several other pain points faced by plan participants today, including guidance around distributions or serving as a resource for retirement income planning. Managed accounts may also be able to help participants determine the right contribution amount and make other changes to improve outcomes.

Working with recordkeepers

The ability to customize managed accounts means that recordkeepers and advisers can work together to tweak them to meet the needs of not only plan participant but of plan sponsors as well, including targeting a specific outcome or using the retirement plan as a tool to make progress on diversity, equity, and inclusion (DEI) initiatives.

“We can take something that the plan sponsor is passionate about and wants to take actions on and be more proactive with that managed account solution to make sure certain segments of the population are getting the most value,” Rundle says. “We can be very dialed in where the needs are for the plan sponsor.”

Such a focus creates even more opportunity for plan advisers to add value to their clients.

“Advisers are really in the perfect position to take managed accounts and use them to make a direct impact, knowing the key focus of the employer,” Rundle adds. “They also may have boots on the ground and be able to help enroll employees or work with them to educate them about managed accounts services.”

As plan sponsors continue to embrace managed accounts, they’ll likely do so either as the sole QDIA or as part of a dynamic QDIA offering that moves participants into managed accounts once they hit a certain asset or age trigger point.

“In the past, plan sponsors saw the managed accounts as just another tool, but now they’re looking at it as the QDIA,” Arends says. “I expect that to continue.”