Practice Management March 1, 2023

The Retirement Income Question

Can managed accounts give participants the planning help they need?
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Art by Alex Eben Meyer


There’s talk about managed accounts as a potential solution to participants’ need to plan for their retirement income.

The accounts can work well for a couple of reasons as a way to help pre-retirees and retirees with income planning, says Wei Hu, vice president of financial research at Edelman Financial Engines in Santa Clara, California. On the investment side, an Edelman managed account can be personalized to reflect how much a participant near or in retirement wants to focus on income-oriented investments versus growth, he says.

“And a managed account is really an advice program, where we’re helping people assess a lot of questions beyond ‘What is the right investment allocation for me?’” Hu says. “We’re helping people think about questions like, ‘What if I retire earlier or later than I originally planned?’ And ‘When should I start taking Social Security?’ We’re helping them develop an overall retirement income plan that factors in their particular circumstances.”

Fidelity Investments’ workplace managed account service can provide individualized help with retirement income planning and an investment portfolio that aims to meet a participant’s income needs in retirement. Using online tools and/or talking with a Fidelity staff member, participants can receive guidance to help make decisions such as at what age to retire, what is a reasonable post-employment budget, and how much they can withdraw from their account annually.

As a first step when a participant close to retirement wants to start planning for retirement income, Fidelity helps that person look at where she is now with accumulated assets and anticipated expenses, says Lorianne Pannozzo, senior vice president, workplace personalized planning and advice at Fidelity in Boston. “We talk about, ‘When do you plan to retire, and what does that retirement look like?’ And we have a retirement income conversation, really focusing on planning for essential expenses versus discretionary expenses in retirement,” she says.

Fidelity has tools to help participants model how retiring at different ages can influence how much money they are expected to have available to spend annually in retirement. “We also have data about many other individuals in similar circumstances, and we can provide a participant with [aggregate] benchmarking data on what expense level other, similar participants have in retirement,” Pannozzo says. “We can show someone data that says, ‘Here’s what the average person your age and with your circumstances might spend annually in retirement.’ Then we can discuss, ‘Do you anticipate spending more or less than that?’” Once a participant has firmed up a post-employment budget, she says, Fidelity can work with that individual to evaluate various drawdown strategies, to determine which will best provide the needed income now and into the future.

At Edelman Financial Engines, more than 130 401(k) plans now incorporate its Income Beyond Retirement solution for participants ages 55 and older, which it introduced last June. The IBR program does not have an additional fee.

IBR aims to help a participant in an Edelman managed account through the transition to an income-focused portfolio allocation, allowing for a mix of income and growth allocations, depending on the person’s retirement objectives. The program also aims to help the participant develop a personalized retirement income plan that takes into account the person’s assets and budgeted expenses. “It helps put together a plan that ultimately says, ‘Here is what the investment allocation that works best for you is, and here is how much annual spending you should be able to afford in retirement, given what you’ve told us,’” Hu says.

The program does not include a retirement income product, instead focusing on the individual’s retirement-preparation phase. It starts with what Edelman calls a Retirement Checkup, which helps a participant understand if he is on track with retirement savings and what levers he can choose from to pull to improve his projected outcome—e.g., saving more or working one or two years longer. IBR then helps model a retirement income plan that factors in several different types of risk, including inflation risk, interest rate risk, longevity risk, market risk and sequence of returns risk—the risk of seeing low or negative returns as someone enters retirement.

“Ultimately, this is to help come up with a more realistic plan for households,” Hu says. “The major new thing with Income Beyond Retirement is a more explicit modeling of longevity uncertainty, which is really as big a risk as market risk. It helps people look at, what are the chances that you can sustain a given level of spending for the rest of your life, taking taxes into account?” A participant can utilize online tools and/or talk by phone with an adviser on the Edelman Financial Engines staff, he says.

Barbara Delaney, founder and principal in StoneStreet Renaissance, a part of Hub International, in Pearl River, New York, says she has spoken to all of her sponsor clients in recent months about helping their participants make plans for their retirement income. She worked closely on the development of a partnership, announced last year, that will allow participants in a Morningstar Investment Management managed account to incorporate a guaranteed-income product purchased through Hueler Income Solutions’ outside-the-plan marketplace.

According to Delaney, as of late January, six Hub plan clients had signed on to start offering the solution on July 1. She says talks continue with all of the major recordkeepers about incorporating the Morningstar/Hueler solution and that some recordkeepers are more enthusiastic about allowing it on their platform than are others.

To make the process simpler and more understandable for participants, she says, Hub advisers can help guide a participant via one-on-one meetings to think through their retirement vision, their retirement assets and their retirement expenses. Delaney says it has been working well to do that via Zoom. Participants also will be able to talk with Morningstar about questions such as what percentage of their portfolio they might consider putting into a guaranteed-income product, given their specific goals and circumstances.

“It’s a decision that’s very personal, and it can’t be automated,” Delaney says. “My clients don’t want their participants to be sold a product: They want to help guide participants through the decisions they need to make about their retirement income.”

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Practice Management March 1, 2023

Recordkeeper Consolidation: Good or Bad News for Small Managed Accounts?

Industry participants are mixed on whether recordkeeper consolidation will help or hinder business opportunities for managed accounts.
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Art by Alex Eben Meyer


The recordkeeping industry’s ongoing consolidation is occurring at the same time interest is growing in offering managed accounts in 401(k) plans, either as the default option or as part of a plan’s investment lineup. The convergence of these trends raises an interesting question: Will recordkeeper consolidation prove to be a boon or a hindrance for smaller managed accounts?

Some industry members say the shrinking recordkeeper marketplace will not reduce business opportunities for managed accounts. Ronnie Cox, senior vice president, investments with Pensionmark Financial Group in Santa Barbara, California, says recordkeeper consolidation and managed account options are not correlated. “Through our experience with managed accounts and adviser managed accounts, we have not lost choice through recordkeeper consolidation,” he says. “I have seen more managed account providers and methodologies gain prominence as managed accounts have gained more traction in the industry.”

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Other observers are less optimistic for smaller managers’ prospects. Audrey Wheat, leader of the vendor analysis team with CAPTRUST in Raleigh, North Carolina, thinks consolidation is more of a hindrance than a help. As an example, she cites a case from several years ago of a smaller managed account provider that worked with two recordkeepers, both of which were acquired by a larger firm. Post-merger, the managed account’s assets were transferred to the acquiring recordkeeper’s existing provider—a common development unless the plan sponsor can make an alternate election, she says. “So, typically the smaller managed account providers are on the wrong end of that transaction,” Wheat says.

Limited Lineups

One challenge is a cap—formal or informal—on the number of managed account providers on the recordkeeper’s platform. That limit can lead to a recordkeeper’s proprietary account receiving greater emphasis. Wheat notes that a few larger recordkeepers offer their own proprietary managed account, with perhaps one alternate off-the-shelf-solution. “However, because they offer a proprietary solution, they incentivize clients to go with that solution through basically pricing it lower than the off-the-shelf version,” Wheat says. “So, that way they can say they have another option, but its usage is typically very low.”

Smaller account managers face practical problems when seeking a lineup slot with recordkeepers. Integration is absolutely key with the recordkeeper, and smaller managers will find it difficult to connect to post-consolidation recordkeepers in a meaningful way, says Steve McCoy, CEO of iJoin in Scottsdale, Arizona. “As recordkeepers get larger, their development road maps are jampacked,” he says. “There’s just not the bandwidth available to connect to smaller or upstart managed account providers.”

Todd Lacey, chief revenue officer at Stadion Money Management in Watkinsville, Georgia, shares McCoy’s view that adding managed accounts to a recordkeeping platform is “a pretty substantial technology build” that requires resources the recordkeeper might prefer to use elsewhere. “At the end of the day, you’ve got tech integration, potential websites, user-experience builds, agreements that have to be drafted, marketing materials—there are a lot of pieces to it,” Lacey explains. The combined effect of those requirements can impose a limitation on managed account expansion, he says.

Cox compares the current environment to the early days of target-date funds. Most recordkeepers initially offered one proprietary fund option, but, over time, they expanded their lineups, particularly as plan advisers demanded more choice. He says he believes the industry will see a similar path evolve for managed accounts. The diversity of methodologies, costs and other features developing in the managed account industry, coupled with advisers’ demand for multiple providers, will spur the availability of multiple accounts on recordkeeping platforms, he maintains.

Getting On Board

Adviser demand might not lead to significant expansion opportunities in the short term, though. For example, Vestwell partners with Franklin Templeton to offer a proprietary adviser managed account feature based on the belief, says Joshua Forstater, senior vice president of sales for New York-based Vestwell, that “the next generation of managed account experiences needs to live natively in the recordkeeping platform in order to be effective.” While Vestwell is open to adding managed account partners, the company wants to maintain its “ability to have an adviser-friendly, frictionless experience,” Forstater emphasizes.

If a recordkeeper receives sufficient expressions of interest from advisers and plan sponsors in a particular account manager, the recordkeeper will be motivated to find more efficient ways to onboard managed accounts to accommodate that interest, says Lacey. “Some recordkeepers have already gone down this path, and I think they are putting themselves in a strong position to be leading managed account recordkeepers, as industry trends play out.”

But recordkeepers need an incentive to prioritize an integration request, says Shawn O’Brien, associate director, retirement at Cerulli Associates in Boston. He cites the hypothetical example of an influential adviser or consultant or a large plan sponsor asking for the implementation. Cases that bring substantial assets to the recordkeeper can also receive higher priority. “There needs to be a proper incentivization for the recordkeeper to say, ‘We’ll make time for this—we’ll allocate resources integrating the solution,’” O’Brien says. “Otherwise, it’s not really worth their time.”

Getting on a recordkeeper’s platform remains a daunting task, though, according to Cox. He says it can be extremely challenging, if not impossible, particularly for small adviser firms or managers. “If you’re a smaller adviser or managed account service provider that can’t make the business case to the recordkeeper, it may be a while before your preferred service becomes available, if at all,” he says.

Looking Ahead

Sources varied on whether recordkeeper consolidation will benefit or hinder small managed accounts in the short term. O’Brien doesn’t see it as a boon or hindrance, he says.

Lacey observes that most recordkeepers now offer managed accounts, and these have become a more important part of their business, a development he views positively. “I think there’s a lot of tailwind leading to the growth of managed accounts, and I think consolidation would probably do nothing but enhance that,” he says.

According to Cox, it’s too early to tell how the trends will interact. Recordkeeper consolidation may provide additional scale to managed account providers in order to drive costs down, he speculates. But consolidation might give recordkeepers increased pricing power or, with decreased competition, the ability to build their own in-house managed account services, he adds. Those services could serve as a wide moat to other managed account providers trying to integrate to those recordkeepers’ platforms. “In either case, I believe it is too early to tell how consolidation will [affect] managed accounts,” he concludes.

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