The missing link: How managed accounts help advisors deliver a true end-to-end retirement plan offering
Because no two participants are alike.
For the majority of Americans, long-term savings begins in the workplace. Which is why there is a massive opportunity for retirement plan advisors to add value beyond setting companies up with a quality 401(k). In addition to building the right plan design with the right investments for the company, many advisors want to help participants better engage with their plans. And because no two participants are alike, managed accounts are a great way to get there.
So why, despite having been around for almost two decades, are managed accounts only now gaining significant attention?
For perspective, in 2009, only 26% of defined contribution plans offered a managed account option. Just 10 years later, that number was up to 66%. And according to a recent Vestwell survey, 27% of advisors said they plan on incorporating managed accounts into their offering in the next 12 months, which does not account for advisors who already offer them.
That said, it’s worth noting that while the focus is high, participant adoption remains low.
We believe there are a number of reasons why managed accounts haven’t gained traction until now. First, they’ve traditionally been expensive, so the benefits of potentially better gains can quickly be offset by fees.
Second, the experience can be clunky. Typically, it’s a pop-out experience where participants get pushed to a third party platform in order to engage with their account. This creates tension and provides a less-than-ideal user journey.
And third, managed accounts are not usually the Qualified Default Investment Alternative (QDIA), which means that participants are often automatically enrolled in other investment options, such as target date funds. In the significant majority of cases, participants don’t move out of their QDIA unless prompted or without proper education. According to our 2019 participant survey, only 17% of participants knew what a target-date fund was, and we can expect that number is even lower for managed accounts.
But that’s just addressing the plan sponsor and participant side of the equation. In order for managed accounts to truly be successful, they have to work for advisors as well.
As advisors think more about how to use defined contribution plans to drive money into wealth, managed accounts present a great opportunity to step in and build relationships tailored to the individual participant. And there’s no better place for an advisor to catalyze lifelong engagement than than in the workplace.
Yet for advisors to effectively engage participants, they require three important things: customization, personalization, and scale. So when it comes to managed accounts, advisors need the flexibility to create a customized offering by leveraging the investments and construct they think are most suitable for their clients. And since no two participants’ situations are alike, advisors also need the ability to help participants tailor their plan investments in a personalized way while providing them a more individualized overall experience.
Additionally, for those advisors looking to take a more active role, investment oversight can require a significant time commitment. Therefore, it’s imperative that advisors have the right technology in place to effectively offer a solution not just to the wealthiest of investors, but to all investors…at scale.
Fee compression, the demand for personalization, and the influx of fintech providers in the retirement space has led to significant consolidation in a push to own the end-to-end participant experience. As the wealth management and retirement industries continue to converge, advisors need to identify the role they want to play in this new ecosystem.
To truly own the experience, advisors need to own the brand, the data, the investments, and the engagement. Offering managed accounts in a flexible, modern construct can help effectively bridge-the-gap between wealth and retirement.
Not only does it bring the advisor closer to all aspects of a participant’s savings journey, but it also supports the employer in delivering an effective plan. Most importantly, it positions an advisor to do what they do best: advise.
