In a recent TPSU training program, Fisher Investment’s Jonathan Dues argued for the utilization of managed accounts in retirement planning. A plan sponsor questioned the value when their retirement plan advisor already directed employees. The argument focused on the limitations of retirement plan advisors handling every employee’s personal plan, as they often focus on fees, fund selection, and fiduciary tasks.
Target date funds (TDFs) have become increasingly prominent, reaching $3.5 trillion by 2023, but, according to Sway Research. However, they are not seen as sustainable long-term solutions due to their basic nature. Managed accounts were originally proposed as a more personalized solution beyond TDFs, but have shown limited success due to a lack of robust data and engagement.
Upon research, some managed account owners have shown no improved growth compared to TDF owners although they pay an extra fees. When questioned about this disparity, an executive from Edelman Financial Engines suggested comparing their offered service to a financial advisor rather than TDFs, due in part to their 20 percent of managed account users accessing phone representations.
At the TPSU program, it was proposed that while managed accounts may not serve at the level of a full-service financial advisor, they could be effectively employed paired with an advisor. To do so, the advisor occasionally checks in with participants to confirm needs and make adjustments when prompted by available data. Yet, younger workers would, for now, benefit from saving with less expensive TDFs and auto-escalation.
The primary hurdles for managed accounts lie on the lack of data and participant engagement, along with privacy concerns. Data analytics could potentially drive personalizations, but it is often limited or inefficient. Engaging participants individually is the ultimate goal to secure more accurate data, enhance partnerships, and build trust. According to UCLA Professor Shlomo Benartzi, significant acceptance of retirement income is most conveniently achieved through automatic adoption – requiring opt-out rather than opting in.
The costs, perceived as high, may decline while managed accounts are leveraged for larger-scale personalized advice driven by increased engagement. Thus managing accounts can facilitate a smoother experience towards retirement income.
