Personalizing DC Investing Grows Thanks to Data, Coordination, Panelists Say

Personalizing retirement plan investing for individual participants has grown by leaps and bounds in recent years, according to a panel of industry experts speaking at a conference held by LeafHouse Financial on October 11 in Austin, Texas.

“You know, it’s interesting, because if I was on stage maybe three years ago, I probably would say we weren’t spending a lot of time [on personalization in workplace retirement plans],” Robert Crothers, managing director and head of product and strategy for the retirement group at BlackRock, told the audience.

Today, he said, technology has gotten around a lot of what had been “pain points,” and the firm is fully engaged with the opportunities.

“The industry has moved a lot,” Crothers said. “There’s a need to help people save better and help them get the best possible returns, along with helping them get the best possible retirement for them.”

Crothers noted that at BlackRock, one of the country’s largest providers of target-date funds in retirement plans, the firm has developed an adviser-managed platform that delivers personalized portfolio management drawing from participant data, industry data and government data, such as the U.S. Census Bureau.

According to financial consulting firm Cerulli Associates, total DC assets for the top nine managed account sponsors in the second quarter of 2023 were $435 billion. The managed account market for general portfolio management, however, is about $10 trillion, with the consultancy predicting continued growth.

While a recent defined-contribution-only investing survey from Sway Research found some growth in managed account use as a default in retirement plans, there is still hesitation from plan advisers and consultants due in part to cost and in part to litigation concerns.

Steve McCoy, the CEO of iJoin, a technology firm providing personalized retirement options, described personalization of retirement plans as no longer a nice-to-have option, but a must-have for plan fiduciaries to satisfy their obligation to provide the best retirement plans.

“These solutions are coming down in costs, and research and analysis show they provide better outcomes,” he said. “So if you’re not using personalized solutions, you might be exposing yourself to litigation.”

McCoy noted a partnership iJoin started with LeafHouse on its reallocateIT adviser-managed-account technology in 2021, and the firms make it available to 3(38) plan advisers through more than 40 recordkeepers.

Stay Flexible

Personalization in older, legacy adviser-managed accounts are often limited in terms of options, said Michael Garberich, a senior vice president for investment and analytics at LeafHouse.

“They’re pretty rigid when it comes to the design around the investment lineup. If the funds don’t fit into a certain asset box, or they’re missing, then the managed account doesn’t work—it’s going to break,” he says. “That’s a very big pain point.”

Those pain points, Garberich said, come from an adviser who wants to give a particular “value tilt” to plan portfolios but cannot due to the rigid structure. Another problem is that when an adviser tries to do something different, “the entire thing breaks, and it’s about 200 to 300 emails back and forth before that gets fixed.”

Those issues led Garberich and his group at LeafHouse to develop an adviser-managed account program that is more flexible by being based on application programming, meaning it is interactive and does not involve “setting up an Excel spreadsheet.” It also has an algorithm that can recommend to an adviser the “next best option” for an investment to prevent the participant’s account from breaking down. The technology is currently patent pending.Finally, Garberich noted, the managed account system comes in at 5 basis points of cost, or .05% of the assets.

John Faustino, head of retirement products for Broadridge Financial Solutions, noted that coordination among financial technology firms, assets managers, insurers and recordkeepers is key to making personalized products work. He highlighted collaboration between his firm and iJoin to bring participant data together and provide more personalized portfolio management.

“The collaboration is the thing from my perspective that’s new and really exciting,” he said. “We’re actually shifting a bit to collaborate and integrate retirement and wealth products within Broadridge, and also externally with other like-minded firms.”

Everyday Investors

Kevin Murphy, senior vice president and head of workplace retirement sales for Franklin Templeton, said when the asset manager set out to provide a managed account solution, it identified several areas to troubleshoot. One was cost, as the team wanted to provide a solution that could compete with low-cost target-date funds. Another was technology that could provide a “simplified” user experience, as opposed to “clunky” prior options. Finally, he noted, Franklin Templeton wanted access to “good, clean data.”

With these targets in mind, Murphy said the firm created a managed account solution driven by what it calls a Goals Optimization Engine, which it launched in 2020 along with LeafHouse.

“It was mission accomplished,” Murphy said. “We wanted to be in the marketplace with every component of the cost, including investment expenses, at or around the same price point of an actively-managed target-date fund.”

Murphy, whose firm has taken the message of personalization to Capitol Hill to push for its importance, said it is focused in large part on education and communication about the potential for personalized retirement options.

“We’re really focused on the narrative, educating not only advisers, but their clients,” Murphy said. “It’s not about the retired couple getting off of their private plane at their vineyard. It’s about the person that is struggling on a day-to-day basis. We need personalization that might not just be about retirement, but about everyday saving or a rainy-day fund … or college savings.”

Murphy also noted that advancements in defined contribution investing will not necessarily end with the retirement plan.

“I think for advisers, it doesn’t just stop with retirement planning,” he said. “Imagine a world, which we see in a few years, where the same advice you’re giving to a retirement plan is also something you’re doing across their entire household.”