Participant Education Needed About Managed Accounts

“We’ve seen a tremendous uptake in managed accounts among our retirement plan clients, which is good news because it contributes to good plan design, says Sangeeta Moorjani, SVP of workplace managed accounts at Fidelity Investments in Boston.

On Fidelity’s recordkeeping platform, about 40% of plan sponsors now offer managed accounts to participants, and there is growth in the number of employees utilizing these services, according to Moorjani.

Fidelity surveyed sponsors and participants on its own platform and delved into previous research it commissioned to try to understand why there has been growth in managed account use.

“We considered whether plan sponsors were hearing that managed accounts were a good feature to adopt, or if there was some other reason in the growth in managed account use,” Moorjani tells PLANADVISER. “We found that employers see it as a retention tool, they actually see a lot of utility to it and feel it is an important mechanism for employees to be retirement ready.”

According to the research, plan sponsors said workplace managed accounts were “very important” to help employees prepare for retirement (57%) and ensure employees are investing their retirement savings appropriately (53%). Additionally, they see it as a way to retain employees (51%) and attract the best employees to their company (49%).

Forty-three percent of employers said that, based on their experience, employees choose workplace managed accounts because they don’t know how to properly allocate their investments, and 40% said it’s because employees don’t have the skills needed to manage their portfolios.

Employers said that 78% of participants were either very or somewhat satisfied with their workplace managed account offering. Nearly half (48%) of employees that use managed accounts said that the ongoing monitoring of their investments was one of the most valuable things about the offering, compared to only 29% of non-managed account users who said that they think it would be valuable.

Forty-four percent of managed account users said that the annual review was valuable, compared to 27% of non-managed account users. And, 38% of managed account users said that ongoing management was valuable compared to 23% of non-managed account users.

When asked to identify the major reasons to sign up for a workplace managed account, 59% cited maximizing account growth, 49% cited ensuring accounts are properly diversified based on unique goals and 45% cited working with a professional.

More than one-third (35%) of employers reported that employees don’t take advantage of workplace managed accounts because they don’t fully understand how it can help them, and 31% said that employees don’t understand the offering.

When participants who don’t use managed accounts were asked why, they say that it’s because they don’t understand what is being offered: 39% say they lack understanding of what is being offered or the benefit, and 25% say that not knowing enough about the offering is a major barrier to use.

Nearly one-quarter (24%) of employees said they like complete control over their investments, while 23% say they enjoy managing their investments themselves. In addition, 32% said that worry about giving up control was a major barrier to use.

Employees are also concerned about fees: 23% said that managed account fees are too high, and 62% said that fees were a major barrier to signing up for workplace managed accounts.

“While we’ve seen tremendous increase of usage by employees, it is still not up to the level of target-date fund usage,” Moorjani notes. “What became clear is that people don’t understand how managed accounts work and their value.”

Educating and clarifying how managed accounts help the employee is key, she adds. As an example, Moorjani tells about a Fidelity retail employer client with more than 70,000 employees that did a lot of education across multiple channels when it adopted Fidelity’s Portfolio Advisory Services at Work (PAS-W) managed account program. The employer saw a year-over-year nearly 70% increase in employee use of managed accounts; many more participants are taking guidance, and there was an overall 57% increase in deferral rates.                   

Once the concept is explained to employees, many think it is relevant and say they would use the service. Fidelity’s research found 54% said that the concept was relevant to them, 52% said they would find the service useful, and 46% said they would like to find out more.

Moorjani explains that the main difference between managed accounts and other professionally managed investments such as target-date funds is there is personalized guidance and personalized management of participant portfolio. A professional looks at a participant's financial situation, risk tolerance and savings patterns and develops a personalized portfolio. In addition, there is ongoing monitoring of the participant’s portfolio with shifts in the market, shifts in individual needs and shifts in plan investment lineups.

“Especially in light of recent market volatility, these things are valuable,” Moorjani concludes. “We almost think of [managed accounts] as a shock absorber, keeping folks from being too conservative or too aggressive.”