A Conversation About Managed Accounts

During a recent edition of the PLANADVISER Practice Progress webinar series, two experts fielded questions about managed accounts, analyzing the ways the accounts’ representation in the wealth management and defined contribution retirement plan space continues to grow.

As the speakers pointed out, assets in managed account programs have grown by 117% since 2012, and they now make up a substantial portion of assets under management and a majority of new asset flows for the wealth management industry. The experts said this growth reflects a long-term industry trend away from commission-based brokerage offerings toward fee-based advisory offerings.

While the speakers agreed there are hurdles to greater adoption, they also believe managed account programs are poised for continued growth, especially as more firms have announced plans to make them a strategic priority.

Market Moves and Managed Accounts

Workers approaching retirement in the next few years haven’t had a lot of places to hide in the market during 2022, said Joe DeBello, a OneDigital managing consultant. The traditional viewpoint for investors has been that fixed income is seen as a safe haven and investing in bonds means they won’t have to worry about any major portfolio shocks. So far this year, this strategy has not offered the level of protection many expected, given that bond and stock prices seem to be moving with greater correlation.

“I think that has been a rude awakening for a lot of investors over the last couple of years, and it will continue to be a challenge with interest rates bouncing around,” DeBello said. “The volatility and uncertainty are going to amplify the conversation around managed solutions and guaranteed income. The experience of going through repeated drawdown events has many people concerned, and they are looking for something different.”

Investors are looking for something more personalized, DeBello said, and that is likely the source of the uptick in interest for managed and personalized solutions.

Managed account solutions can be a meaningful way to develop individual client relationships, but advisers should understand the process and methodology of what is happening behind the scenes, DeBello said. It is also important for advisers to spend time educating plan sponsors on the improvements to the back-end technology, and on how they can better access and use data to increase the level of personalization that can be implemented for a participant.

Moving to MA 2.0

The speakers also discussed the fact that managed accounts are evolving in order to address some of the shortcomings commonly associated with the investment approach.

“Many of the knocks that we hear as we talk about managed accounts with plan sponsors are referring to older approaches to building managed accounts,” DeBello said.

One concern, for example, is that it can be difficult to get employees to engage with their account and provide the data that can help it to be more personally tailored.

“Today, managed account providers have ready access to data through payroll file feeds, and the ability to customize has really gotten a lot easier, with little to no engagement required from the participant,” DeBello said.

Breaking Down the Complexity

Because plan sponsors and participants may not understand the complexities of managed accounts, it is up to advisers to break these topics down and communicate them well, said Todd Kading, LeafHouse Financial CEO. Some may be focused on what managed accounts used to be, rather than what they are today or what they will become.

“Managed accounts used to be basically just model portfolios, where you had a questionnaire that participants would fill in to assign them to one of, say, seven portfolio options,” Kading said. “We all know that is not a true managed account. Those are models.”

Kading said his firm’s technology uses 150 unique data points to help set an individual allocation for each managed account investor, leveraging such factors as state tax rates, Social Security expectations, market assumptions, income information and more.

Kading said more plan sponsors and participants are starting to realize the next generation of managed account technology is available, and its costs are appropriate. Now it is up to the adviser industry and plan providers to ensure the new technology lives up to its promise.