Managed Account Programs Help Defined Contribution Participants Tackle Retirement Readiness

March 15, 2021 — Boston

Managed account providers leverage technology to enhance, rather than replace, advisor-participant engagements

Some defined contribution (DC) participants, particularly those nearing or living in retirement, stand to benefit from the professional, personalized investment management and advice offered through a managed account program, according to the latest Cerulli Edge—U.S. Retirement Edition.

Managed accounts, though comprising only a small portion of total DC assets (roughly 3%–4% as of year-end 2019), continue to gain traction within the DC market. In a managed account program, an advisor, assuming fiduciary responsibility under the Employee Retirement Income Security Act (ERISA), constructs or recommends a customized portfolio for an individual DC participant tailored to the participant's age, financial circumstances (e.g., account balance, income, deferral rate), and other information unique to the individual. The customized, professional advice and investment management offered through a managed account can be instrumental to improving retirement readiness.

From delivering advice in a more streamlined fashion to broadening their offerings to include financial planning services outside of traditional DC portfolio management, providers are striving to deliver more comprehensive, holistic advice—and do so more efficiently. One key area of innovation in the DC managed accounts space 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,” says Shawn O’Brien, senior analyst.

While personalized investment management remains the core (and more lucrative) offering for managed account providers, guiding participants through non-investment-related financial complications related to budgeting, debt management, short-term saving objectives, and other more immediate financial considerations allows managed account providers to aid and engage a broader swath of the participant population and put participants in a better position to focus on their long-term saving and investment objectives. “Some plans may offer similar services through their recordkeeper or plan advisor, so providers should work with their plan sponsor clients to evaluate whether it makes sense to leverage the financial planning and wellness services offered through their managed account provider and, if so, how to craft targeted communications toward participants who might benefit from these services,” he adds.

Ultimately, participants nearing retirement face an array of complex, interrelated financial decisions as they begin to transition from asset accumulation to decumulation. By incorporating a participant's expected sources of income in retirement, spending requirements, risk tolerance, and other personal information, an advisor in a managed account program can help participants craft a personalized investment and drawdown strategy. Cerulli expects managed accounts to play a central role within retirement tiers and other decumulation-focused plan design initiatives in the years to come.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Retirement Edition, 1Q 2021 Issue.

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