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Managed Accounts Help 401(k) Savers Prepare for Retirement: Cerulli

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What You Need to Know

  • Cerulli expects managed accounts to play a central role in retirement tiers in the coming years.
  • Personalized investment management is more lucrative for providers.
  • Guiding participants through budgeting, debt management and short-term saving allows providers to focus on their long-term goals.

Managed account programs can be beneficial for some participants in 401(k)s and other defined contribution plans, most importantly for those approaching or already living in retirement, according to the latest Cerulli Edge.

In a managed account program, an advisor assumes fiduciary responsibility under the Employee Retirement Income Security Act and constructs or recommends a customized portfolio for an individual DC plan participant.

Cerulli says it expects managed accounts to play a central role in retirement tiers and other decumulation-focused plan design initiatives in coming years. It notes that managed accounts are gaining traction in the retirement plan market, albeit from a small base: 3% to 4% as of year-end 2019.

The top nine DC plan managed account providers constituted some $400 billon in plan assets at the end of the fourth quarter. Most DC plan recordkeepers now partner with at least one managed account provider, according to Cerulli. 

Overall, 28% of 401(k) plan sponsors offer a managed account, with adoption rising to 44% among larger plans with at least $250 million in plan assets. Seventeen percent of plan sponsors plan to offer a managed account within the next 12 months.

Cerulli says providers are striving to deliver more comprehensive, holistic advice — from providing advice in a more streamlined fashion to broadening their offerings to include financial planning services outside of traditional DC portfolio management — and to do so more efficiently. 

One key area of innovation 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,” Cerulli senior analyst Shawn O’Brien said in a statement.

For managed account providers, personalized investment management remains their core — and more lucrative — offering, Cerulli says. 

However, guiding participants through more immediate financial considerations, such as budgeting, debt management and short-term saving, allows providers to aid and engage more participants and put them in a better position to focus on their long-term saving and investment objectives. 

O’Brien points out that some plans may offer similar services through their record keeper or plan advisor. He says they should work with their plan sponsor clients to evaluate whether leveraging the financial planning and wellness services offered through their managed account provider makes sense. 

If it does, they can together decide how to craft targeted communications toward participants who might benefit from these services.

(Photo: Shutterstock)