The Adviser Difference

With interest in managed accounts growing (see “A QDIA in Transition”), it is worth analyzing whether plans that have both an adviser and a managed account have better outcomes—i.e., with regard to deferral rates and average balances—than do plans without an adviser. A look at the 2017 PLANSPONSOR Defined Contribution (DC) Survey indicates that advisers may be making an impact regarding the use of managed accounts—which is a positive validation, especially because of the higher fees the accounts generally command compared with those for target-date funds (TDFs).

The percentage of plans using managed accounts as the default is still much smaller than that of plans using TDFs. Still, nearly 10% (9.7%) of plans without an adviser use a managed account as the qualified default investment alternative (QDIA), whereas 7.7% of plans with an adviser do so. It is only slightly more common for plans to use a managed account as the default when the adviser is a 3(38) fiduciary—i.e., 9.2% of plans.

Advisers are making a difference, albeit just a slight one, when it comes to deferral rates for plans with a managed account QDIA. The data show that the average deferral rate for non-advised plans with a managed account is 6.7%. For such plans with an adviser, the average deferral rate is 7.6%—8.9% when the adviser is a 3(38) fiduciary and 7.1% when the adviser is a 3(21).

The most significant difference between plans with and without adviser guidance is seen in the area of default deferral rates. Likewise, looking at plans defaulting into managed accounts and having no adviser, 40.0% use a default deferral rate of less than 4%. When these plans have an adviser, only 28.6% employ such a low rate.