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Customization in Managed Accounts

An increasing number of plans are offering managed account services to their participants. According to Vanguard’s How America Saves 2015, 22% of plans on the Vanguard recordkeeping platform offer managed accounts. Fidelity is seeing higher usage, reporting to PEI in a recent conference call that 37% of the plans on its platform offer managed accounts. However, actual utilization of the service at the participant level is not as high. Of all participants on the Vanguard platform, 4% use a managed account program. Fidelity reported that of large plans that offer managed accounts, they are seeing 7-8% of participants utilizing the service. One of the reasons for the slow uptake of managed accounts at the participant level may be that target date funds (TDFs) continue to be the QDIA of choice.

One of the benefits of investing in a managed account rather than a TDF is that managed account services can customize the asset mix based on an individual participant’s financial situation and risk preferences. TDFs on the other hand are customized only to the expected length of time until retirement. Aside from years to retirement, the factors that have the biggest impact on the asset mix of a managed account include: savings held outside the retirement account, spousal assets, and individual risk preferences. However, getting managed account holders to provide the impactful information can be a challenge. PEI has learned from several large managed account providers that as many as half of the participants using managed accounts do not supply information regarding their risk preferences or outside assets (spousal or personal).

Whether plan sponsors are considering adding managed accounts to their lineup, or already offer the service, PEI believes a comprehensive evaluation of a managed account provider is part of a prudent process. While most recordkeeping platforms offer just one managed account service, there are some that offer more. In these cases, the services of those providers should be evaluated. PEI believes the evaluation should not only include an analysis of the extent to which the asset mix in a managed account is influenced by participant-provided information, but how the provider will work with the plan sponsor to encourage.