Are Managed Accounts Good for Less Wealthy Retirees?

Many plan advisers and their clients have chosen to make managed accounts available to participants either as an opt-in, or a default. Overall, about 38% of plan sponsors say they offer a managed account service for participants, according to PLANSPONSOR’s 2024 Defined Contribution Benchmarking Report.

Whether offering them or not, many sponsors appear to be turning to retirement plan advisers for thoughts on the offerings: In a ranking of third-party service value, with 1 the least useful and 5 the most useful, plan sponsors ranked “help in selecting and monitoring a managed account service” a 3.4, according to the same report.

As the retirement industry is looking for ways to help retirees manage their decumulation stage, Larry Deatherage, a managing director at SageView Advisory Group, sees managed accounts as a useful vehicle for retirees or near-retirees.

“I think once you’ve been in the retirement phase, working with individual advisers really helps pay off, but not everybody can afford or have access to an adviser,” says San Diego-based Deatherage. “So managed accounts can fill that void pretty nicely.”

Engagement Needed

For the tool to work, however, Deatherage notes that an individual must use the managed account to its fullest. If a participant is not actively engaging in the managed account process, “you’re not going to get the best advice out of that program,” he says.

He also emphasizes the usefulness of managed accounts in decumulation, a key area for the retirement plan industry as more people retire with 401(k) assets as their primary payout vehicle. In-plan retirement income products, such as annuities, are starting to be added into solutions with managed accounts, Deatherage says, as one of multiple options available to the country’s largest retirement cohort, Baby Boomers.

“I’m definitely not saying we’re totally on board with that yet, but certainly the industry is heading that way: Participants are getting to or are in retirement with a managed account solution,” he says.

Brett Fischer, assistant vice president and head of investment product strategy at Principal Financial Group, believes the more personalized the experience, the more success individuals will have in meeting long-term financial security and retirement goals. While a managed account can add more personalized management than a target-date fund or other investment holding, it also can have limitations for more complex financial needs.

“If the participant has other assets outside the retirement plan with another provider, having them in multiple places, versus consolidated, does require a bit more effort to manage, even though the managed account solution is set up to do that for them,” Fischer says.

When considering staying in a managed account within a plan or rolling out altogether but staying with an adviser, Tony Franchimone, another managing director at SageView, says the decision depends entirely on the individual.

In most cases, if the individual wants to and can work with an adviser, that adviser will try to get the retiree to roll out, in order to manage the portfolio themselves. That said, a client can work with an adviser while staying in-plan by paying a “planning fee.” In that scenario, the investor benefits from staying in a managed account in the plan and paying 0.3% to 0.4% (30 to 40 basis points) of managed assets, as opposed to 1%. A fixed-income portfolio, however, may yield a different result; there is no answer that works across the board.

“If it’s a 100% fixed-income portfolio, and it’s around a million dollars, you might be able to be around 75 basis points [with an adviser],” Franchimone says. “But if you look at pure costs, leave it in the plan. Again, it depends on that person.”

Levels of Service

However, Franchimone says that if an individual wants to talk to an adviser every single day, staying in-plan and paying the discounted 40-basis-points rate would not be an option.

“I wouldn’t expect him to take my call every single day,” Franchimone says. “If I pay him 1.5% and I’m texting him or calling him or whatever, I’m going to expect that he’s going to get back. So how much personalization and engagement do you want to have? I think that has a lot to do with it.”

When it comes to an age threshold or an asset amount at which people should go into a managed account, Deatherage cites—and agrees with—industry white papers that state people age 40 and older can achieve significant value with a managed account.

Fischer of Principal notes that not just being further along in your career, but going through life changes, can be a good reason to be in a managed account.

“Career goals, or maybe I would say career successes, are when people potentially start to earn more money and are saving more money,” Fischer says. “They want to understand what to do with that money and how it should be invested.”

Life events such as having a child and wanting to pay for higher education can often be a driver of such changes.

“How does that play with saving for retirement?” he asks. “Managed accounts can kind of help you with all those decisions, where you’re adequately saving for retirement, but also taking care of other financial goals you have outside of your retirement.”