Managed accounts offer a variety of benefits to the majority of plan participants, with more benefiting from some features than from others.
That's according to a Vanguard study, "The Value of Managed Account Advice," that found that 60 percent of retirement plan participants were better off for taking advantage of managed account advice.
Those participants' projected 10-year retirement wealth increased by an average of 30 percent, net of investment and advice fees.
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The study said that the increase could "be attributed to two factors: higher expected returns because of increased equity exposure and, among a subset of participants, increased savings rates."
Another beneficial feature of managed accounts is a reduction in portfolio risk, which paid off for 30 percent of participants.
It's a mixed blessing, though, since "[w]hile participants' portfolios are better diversified, that risk reduction leads to lower expected returns and retirement wealth because of reduced equity exposure."
Then there's the effect a managed account can have on savings rates.
Four out of 10 participants, the study said, "made an active savings decision at the time they adopted managed account advice. One-third of participants chose to increase their savings rate by an average of three percentage points."
On the flip side, however, "7 percent of participants reduced their contribution rate when choosing an advice service."
Another aspect of participants' plans where managed accounts can prove beneficial is one that sponsor companies may not be all that thrilled with, since it involves company stock.
"For participants with concentrated single-stock positions of 20 percent or more of their account balance, company stock risk was substantially reduced by using a managed account service. The average allocation to company stock fell from 46 percent to 4 percent as a result of managed account advice."
While the study pointed out that "[t]he benefit depends on the fee charged for the service relative to improvements in investment allocations and savings behavior," it added that managed account providers should also consider boosting efforts to get employees to increase their savings rates and that plan sponsors should consider "offering professional advice programs as a complement to other professionally managed vehicles, such as target-date funds."
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