Cerulli Associates recently took a look at managed accounts
in the defined contribution (DC) space, and (little surprise) found value for
participants through their use.
Managed accounts, though comprising only a small portion of
total DC assets (roughly 3% to 4% as of year-end 2019), continue to gain
traction within the DC market.
In a managed account program, an advisor, assuming fiduciary
responsibility under ERISA, constructs or recommends a customized portfolio for
an individual DC participant tailored to the participant’s age, financial
circumstances (e.g., account balance, income, deferral rate), and other
information unique to the individual. The customized, professional advice and
investment management offered through a managed account can be instrumental to
improving retirement readiness, Cerulli noted.
From delivering advice in a more streamlined fashion to
broadening their offerings to include financial planning services outside of
traditional DC portfolio management, providers are striving to deliver more
comprehensive, holistic advice—and do so more efficiently, the Boston-based
research and consulting firm added. One key area of innovation in the DC
managed accounts space involves the collection of participant data.
“Rather than having participants manually gather and
transmit a variety of personal data points to their managed account provider,
several platforms now automatically extract participant-level data from the
recordkeeper, effectively streamlining the data aggregation process,” Shawn
O’Brien, senior analyst, said in a statement.
Personalized investment management remains the core (and
more lucrative) offering for managed account providers. Yet guiding
participants through non-investment-related financial complications related to
budgeting, debt management, short-term saving objectives, and other more
immediate financial considerations allows managed account providers to aid and
engage a broader swath of the participant population and put participants in a
better position to focus on their long-term saving and investment objectives.
“Some plans may offer similar services through their
recordkeeper or plan advisor, so providers should work with their plan sponsor
clients to evaluate whether it makes sense to leverage the financial planning
and wellness services offered through their managed account provider and, if
so, how to craft targeted communications toward participants who might benefit
from these services,” O’Brien concluded.
Retirement readiness boost
Ultimately, participants nearing retirement face an array of
complex, interrelated financial decisions as they begin to transition from
asset accumulation to decumulation.
By incorporating a participant’s expected sources of income
in retirement, spending requirements, risk tolerance, and other personal
information, an advisor in a managed account program can help participants
craft a personalized investment and drawdown strategy.
Cerulli expects managed accounts to play a central role
within retirement tiers and other decumulation-focused plan design initiatives
in the years to come.
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