Adviser Managed Accounts. A Good Fit?

Art by Woshibai

In March, Empower Retirement announced its new advisor managed accounts service, with three large advisory firms as early adopters: SageView Advisory Group, Meisirow Financial Retirment Planning, and Advisory and Resources Investment Advisors.

“Advisor managed accounts offer retirement investors the best of both worlds—the strengths of SageView’s advisers and dedicated investment team combined with all the services and technology of Empower,” says Randy Long, founder and managing principal of SageView. “It allows us to focus on designing a prudent retirement strategy for employees while having Empower there to deliver an optimal participant experience. We fully expect this revolutionary new managed account model to drive better outcomes for employees.”

Since 2015, Betterment for Business has offered its version of this service, Betterment for Advisors. Today, about 500 clients use the service, says Amy Ouellette, director of retirement services. The key benefit of the service, she says, is that “advisers are looking to pair with technology to collect information on participants to drive the managed account and provide advice in a streamlined way, while participants are looking for advice.” In addition to that, participants can provide information about their goals, timeline and risk tolerance, and the managed account can be adjusted based on those factors.

Certainly, one of the biggest benefits of a managed account is that it can “help participants avoid poor moves during market downturns, whereby they start to play with different asset allocations and move into cash,” Ouellette says. “Managed account services can keep them on track.”

To date, managed account services have often only been available on single recordkeeper platforms, requiring advisers to work with multiple platforms to serve all of their plan sponsor clients.

Three years ago, for instance, Morningstar rolled out its managed account service with only Schwab Retirement Plan Services Inc. as the recordkeeper, notes Jim Smith, head of workplace strategy and business development at Morningstar. In the fourth quarter, Morningstar developed a prototype that can work with any recordkeeper platform, and five large RIA firms immediately signed up, with CAPTRUST being the first, Smith says.

He says adviser managed account services offer a number of advantages for advisers, the most important of which is to offer advice to hundreds of participants. “CAPTRUST, for instance, focuses primarily on wealth management and defined contribution plans, and to date, its advisers have been very good at catering to the C-suite,” Smith says. “What they have wanted is a way to scale this advice to people who don’t have as large of a balance.”

This allows advisers to bring their expertise to build personalized portfolios for their wealth management clients to a wider base of retirement plan participants.

“They will now be able to seamlessly offer advice to wealth management clients and DC plans,” Smith says.

Smith adds that managed accounts were able to draw together only about four data points on participants in 2007. Today, that is now nine to 10. “A number of RIA firms have realized that 401(k) plans are now getting more data on individuals, so we can do a better job of personalizing advice on an individual level.”

Recordkeepers today have about six to eight data points on each participant at a bare minimum, Smith says, and that is even before the participant shares information about themselves.

Nathan Voris, managing director at Schwab Retirement Plan Services, says his firm is very excited about Morningstar’s new open architecture managed account platform, which will be launching this quarter.

“Since we launched our solution with Morningstar three years ago, advisers told us it was cumbersome for them to have 11 different advice solutions across different recordkeepers,” Voris says. “Morningstar has now built that one advice solution, and they are now enrolling multiple recordkeepers to the platform, like us. We have been talking with retirement plan consultants over the past nine to 12 months about this offering, and we believe that the consultants who are the most innovative and focused on serving participants will adopt this.”

And as a result of this new, open architecture approach to offering managed accounts with the guidance of advisers, Voris says, “managed accounts will become more prevalent. Advice has been a part of our culture for a number of years. We think this innovation will be a differentiator. Having a single solution where you can build one set of asset allocation guidance and have a similar user experience for all participants regardless of where the client sits from a recordkeeper situation can be a game changer.”

John Hancock Retirement has also signed up for the new Morningstar managed account service and is 10 weeks away from being actively in the market with it, says Jack Barry, head of product development and strategy for the firm. He says his firm was interested in the new service because it “not only allows an adviser to continue to play an important role for plans but takes them to the next step. Instead of just offering a menu, it creates a way to deliver advice to participants and enables the adviser to deliver personalized plans to those who want it without having to meet with each person one-on-one.”

Ultimately, Barry believes, it will “deliver better outcomes for plan participants through the digital tools, by suggesting such things as ensuring they are properly diversified and recommending increased savings.”

Jess Liberi, head of product at eMoney Advisor, foresees more firms embracing adviser managed accounts, as digital tools become more familiar to participants: “It is important that advisers incorporate digital offerings into their existing service models, enabling them to meet their potential clients where they are, and to embrace solutions that make it easier for these individuals to do self-guided planning. We believe solutions like this will certainly continue to become more prevalent across the industry.”