Looking to Benchmark Managed Accounts? This Firm Has a Report for That

Managed account offerings in qualified retirement plans are designed to provide personalized investment advice and decisionmaking guidance to participants. But as every participant’s situation is different, independently benchmarking the offering against lower-cost offerings such as target-date funds can be difficult.

Fiduciary Decisions, which has been providing data and research on recordkeepers and retirement solutions products for more than a decade, was getting enough questions about in-plan managed accounts to dig into a solution.

The data and research provider started the benchmarking project about 18 months ago in a process that included getting initial feedback from hundreds of recordkeepers and advisory firms, says CEO and founder Tom Kmak.

“We have three tenets [for our offerings], which is that they be independent, comprehensive and actionable,” Kmak says. “We have to build something that we think works for everybody. … We’re not favoring one [managed account] over another.”

The result, which Fiduciary Decisions announced November 7, is a report that will assess the quality of the managed account providers, the services they deliver and their value in terms of participant success measures and engagement.

Kmak, in reviewing a mock-up report, noted that the firm always begins with regulatory and legal background. Part of the hesitancy for plan fiduciaries in offering managed accounts, he notes, is assurance that they meet both regulatory obligations and will stand up against legal complaints. Many litigation complaints, as the report notes, have called managed accounts “expensive target-date funds.”

The benchmarking report itself, according to Kmak, not only refutes that claim, but can show a fiduciary that the more personalized investment offering “is actually a better option to meet fiduciary obligations.”

Doing the Math

After setting the regulatory table, Fiduciary Decisions would consider the monthly income for a retireee in a base case retirement plan with no advice, as compared to one in a managed account. In the managed account scenario, it would take into account decisions that might be made from the advice, such as deferring above the auto-enrolled amount.

The base case study showed that “you’re not paying just for the investments [within a managed account],” Kmak says. “In the end, it’s showing where the rubber meets the road, which is providing retirement income.”

A report could go on to consider, from Fiduciary Decisions’ recordkeeper database, the three types of managed account programs a plan sponsor can offer: proprietary to a recordkeeper, adviser-driven or from an independent third-party. The firm can look at a plan sponsor’s size to show how many participants among their peer group have access to managed accounts, and by which type.

Fiduciary Decisions would then look at the quality of managed account offerings in terms of investment strategies and options available to participants, as well as services available to participants. Those options could range from the managed accounts availability as a qualified default investment alternative to whether call center staff is available to answer questions.

In one analysis assessing the value of a managed account, FDI can consider the success of improving retirement outcomes for participants versus a TDF or “do-it-yourself” approach. The success measured in the three areas of the sample report considered factors such as maximizing a company match, whether or not a participant takes pre-retirement distributions and if the saver has established a personal retirement goal.

Examining Fees

For these outcomes to work, however, participants must engage with the managed account and give it the right inputs, Kmak notes. To gauge this aspect of a managed account offering, Fiduciary Decisions can once again detail multiple variables regarding engagement for managed account users versus TDFs and DIY savers.

Next, a report would dive into investment performance net of fees—what Kmak calls “the cake.” Here, Fiduciary Decisions would compare managed account core investment option performance with the “most similar” TDF options by vintage. 

“We want to measure the ingredients in the cake, as compared [with] TDFs,” Kmak says. “No matter how good the cake is made, if you’ve got bad underlying ingredients, it won’t taste good.”

The CEO notes that Fiduciary Decisions’ benchmarking report, being new, will take some time to take hold among clients. But he feels confident the demand is there to make it a popular offering.

“All of our clients are asking for this,” he says. “It’s a situation of, ‘If you build it, they will come.’”

Correction: removes some figures that were only intended for mock-up.