A narrow majority of defined contribution plan consultants and advisers
say managed accounts provide less benefit to participants than target-date
funds, according to a survey by Pacific Investment Management Co. LLC, Newport Beach, Calif.
Fifty-one percent of respondents disagreed with the statement that
managed accounts' costs relative to target-date funds "are
justified/reasonable given the value to participants," said a report on
the survey of consultants who represent more than 17,000 DC plans with total
assets exceeding $4.4 trillion.
Only 3% strongly agreed with the statement, 10% agreed and 35% agreed
somewhat.
Participants' inadequate cooperation with managed account providers is
part of the problem. Forty-one percent of respondents disagreed with the
statement that participants "tend to add personal information, rendering
advice more valuable." Only 6% strongly agreed, 20% agreed and 33% agreed
somewhat.
"We continue to hear that a lot of participants don't do it,"
Stacy Schaus, PIMCO's executive vice president and defined contribution
practice leader, said in an interview. "It's a challenge to educate them.
I think there's more work to be done."
The survey of 77 consultants and advisers also found divergent views
about the value of managed accounts. For example, 9% strongly agreed, 22%
agreed and 38% agreed somewhat that managed accounts' investment methodology is
"equal or superior" to that of target-date funds, while 32%
disagreed. Also, 9% of respondents strongly agreed, 26% agreed and 43% agreed
somewhat that managed accounts "help increase plan participation and/or
contribution levels." However, 23% disagreed.
The survey of 77 consultants and advisers also found divergent views
about the value of managed accounts. For example, 9% strongly agreed, 22%
agreed and 38% agreed somewhat that managed accounts' investment methodology is
"equal or superior" to that of target-date funds, while 32%
disagreed. Also, 9% of respondents strongly agreed, 26% agreed and 43% agreed
somewhat that managed accounts "help increase plan participation and/or
contribution levels." However, 23% disagreed
The survey noted a greater use of custom target-date strategies and
custom multimanager/white-label strategies. To best assess this growth, PIMCO
analyzed responses from consultants who provided information on these topics
for this survey and the 2017 survey.
For sponsors offering custom target-date funds, the number rose to 594 from 304. The amount of assets
under management for this approach climbed to $211 billion from $153 billion.
"The single headline word for custom target-date funds is
control," said Ms. Schaus, referring to sponsors' desire to manage
glidepath design and underlying investments. "It can drive efficiencies
and can drive down costs."
Consultants told PIMCO that larger plans are the most likely to go with
a custom target-date strategy. When asked what type of target-date strategy
they would recommend for plans of different sizes, 53% cited custom approaches
for plans with $1 billion or more in assets and 23% supported the strategy for
plans with $550 million to $1 billion in assets. Four smaller categories
received responses ranging from 8% to 3% for recommending custom target-date
funds.
For sponsors offering the multimanager/white label strategy, PIMCO
reported the number rose to 123 from 105. Assets under management rose to $343
billion from $297 billion, based on sponsors who provided information in both
survey years.
Focusing on the future
When asked to forecast this year, consultants said their clients are
focused on fees. Given a list of what they expected their clients' top priorities
would be, consultants cited variations of fees three times. Evaluating
investment fees ranked first with 63% of responses; evaluating how plan costs
were paid placed second (59%); and evaluating administrative fees (57%) tied
for third with reviewing target-date funds.
Cost also figured prominently in why sponsors balk at offering in-plan
insurance products, such as annuities.
When asked about the primary reasons clients might not offer in-plan
options, 87% of respondents cited costs, up 13 percentage points from last
year's survey.
Insufficient government support — an enhanced safe harbor — placed
second with 62%, the same as last year. Respondents were given a list of 12
choices and multiple responses were allowed.
The role of a safe harbor has been a sore point for plan sponsors and
providers, who have clamored for greater regulatory protection from the Department of Labor. Sponsors want to make
sure they aren't liable for the failure of insurers they select if they offer
an in-plan retirement income option.
The third-ranked impediment to offer
ing in-plan products was communication complexity, which was cited by
59% of respondents, up 21 percentage points. Portability received 59% of
comments, down 9 percentage points.
The survey also found that consultants believe in an expanded notion of
financial wellness. When asked which services are important to include in a financial wellness
platform, the top answer was budgeting, followed by retirement planning,
emergency savings, debt repayment and financial education.
Ms. Schaus said she was "delighted" that consultants are
focusing on multiple factors that can "undermine retirement planning and
savings."
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