Managed account providers may be leaving plan sponsors vulnerable to fiduciary claims and often disclose too little about their fees and performance to help participants, the Government Accounting Office said in a report released today.
401(k) plan sponsors have increasingly offered their participants managed accounts. Such accounts provide participants with a team of investment professionals who actively manage their retirement savings account.
The GAO reviewed eight managed account providers that represented most of the industry in 2013. It found they all varied in how they structured managed accounts, including the services they offered and their reported fiduciary roles. One of the eight providers defined their fiduciary role in a way that was different from the rest, according to the GAO’s findings.
The Department of Labor has clear fiduciary requirements for managed account providers offering services to plans whose participants are “defaulted” into a managed account. Those guidelines offer sponsors protection against the actions of the providers, and also provide participants assurance that the provider is acting in their best interest.
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But the DOL “does not have a similar explicit requirement for providers who offer services to participants on an opt-in basis,” the GAO said. And that could encourage providers to “structure their services to limit the fiduciary liability protection they offer,” it said.
The GAO also looked at the “limited fee and performance data available” and found that long-term benefits of managed accounts “could vary significantly,” given the wide range of fees providers charge, which the GAO found to be between $8 and $100 on every $10,000 invested.