A white paper released on Thursday by Empower Retirement and its subsidiary, Advised Assets Group, a registered investment advisor, posits that investors who aren’t using a managed account solution aren’t just struggling to keep up, they’re falling behind.

An examination of 1,783 defined contribution plans and 315,441 participants in AAG plans found that managed account users had a nearly two percentage point advantage over the five-year period from April 1, 2010 to March 31, 2015: 9.77% for the managed account users versus 7.85%.

The report defined “managed account” as a retirement plan account managed by an RIA. Empower is a DC plan provider; AAG offers managed accounts.

“Proper asset allocation is an essential component to maximizing retirement savings. Through a managed account product, participants can receive the help of an investment professional,” Edmund Murphy, president of Empower, said in a statement. “By doing so, they can take the emotion out of investing and help participants gain the confidence they need that the investments in their retirement plan are properly allocated.”

The paper noted that “while the difference in average performance is certainly an important data point, it’s not the full story.” The study found a wider range of returns for investors who weren’t using a managed account product, with some earning significantly less than 7.8%. The spread between the highest and lowest returns for managed account users was less than 4%, but other investors saw returns as high as 13% (higher than the managed-account users’ high of 11.7%) and as low as 1.6%: an 11.4% spread.

Empower and AAG argued that 401(k)s represent a “passing of the torch” as employees shouldered a greater responsibility for their retirement savings, but that torch “was not a magic wand. It didn’t suddenly give rise to a generation of financial experts who knew how to choose their investments, understood the importance of rebalancing and realized timing the market was a bad idea.”

To overcome those behavioral issues and stabilize returns, Empower and AAG found more plans are adopting managed accounts and more participants are enrolling. The number of plans offering a managed account option has increased 64% year-over-year and the number of participants is up 159%.

A 2014 report by the Government Accountability Office found that the advantages of managed accounts can be offset by the additional fees participants are charged to use them. “Providers charge additional fees for managed accounts that range from $8 to $100 on every $10,000 in a participant’s account,” the GAO found, adding that the long-term effect of managed accounts can vary significantly as a result.

An August study by Vanguard of about 40,000 participants using its managed accounts service found that in some cases, the fee on the managed account can be offset by a reduction in expense ratios due to portfolio reallocation. On average, expense ratios fell by 0.06% for participants in managed accounts, which offset about 16% of the advice fee. 

— Check out Don’t Use the ‘F-Word’ With 401(k) Investors on ThinkAdvisor.