Morningstar Enhances Managed Accounts Platform

Among the most significant enhancements to Retirement Manager is the addition of Income Secure, which provides individualized, tax-efficient retirement income drawdown advice. A Morningstar research paper, “Alpha, Beta, and Now…Gamma,” shows that a participant’s withdrawal strategy—how much to take from a retirement portfolio each year and from which account (IRA, 401(k), taxable, etc.)—can have the most significant effect on the amount of income an investor has in retirement.

Retirement Manager can evaluate all of a participant’s holdings across both taxable and tax-deferred accounts and provide a specific, individualized drawdown plan that outlines how much he should pull from each account each year, considering taxes and minimum required distributions. “From an individual standpoint, [participants] just want to know how much they can spend in retirement,” James Smith, vice president of client solutions at Morningstar Investment Management, told PLANADVISER.

Retirees must make many complex decisions every year based on changes that will occur upon leaving the work force: Savings mode will end, and participants will incur different tax rates, for example. “This helps simplify the process for the average person,” said David Blanchett, head of retirement research at Morningstar Investment Management. “Our recommendations will be very different based upon different states.”

Morningstar has also enhanced its investment recommendations to reflect its latest liability-driven investment (LDI) methodology. LDI recognizes that investors in or nearing retirement face different risks than those in the accumulation phase. For example, two investors may have the same stock-bond split in their portfolios, but the investor closer to retirement has greater need for inflation, currency and interest rate protection than someone further from retirement.

Participants who use Retirement Manager will now get investment recommendations that are not only suited to their risk capacity, but also sensitive to the unique risks associated with their life stage.

Another significant enhancement is more holistic retirement planning advice with recommendations about what age to retire. In addition, if a participant is not saving enough and has reached the annual 401(k) savings limit, Retirement Manager will provide participants with asset-allocation and savings recommendations for an outside taxable account.

Additional enhancements to Retirement Manager include:

•  Portfolio assignment based on patented human capital methodology, which accounts for an investor’s total economic situation—both current wealth and future earnings and savings potential;
•  Enhancements to fund selection methodology, inflation rate forecasting and treatment of stable value funds; and,
•  Personalized recommendations for guaranteed income products, both in and out of plan.

The enhancements have already been rolled out to some institutional clients but will fully launch sometime between now and July, Smith said. 

In addition to providing defined contribution managed accounts and advice, Morningstar offers plan sponsor investment lineup selection, 3(21) and 3(38) fiduciary services and custom target-date fund (TDF) design through its registered investment advisers.