UpFront | Published in November 2016

Participants in Managed Accounts Missing Out on Personalization

How proactive the managers are in continuing to reach out to their investors

By Lee Barney | November 2016
Art by Seong Eun Macfarlane
“We are seeing that 50% of the participants electing to use a managed account are not providing the additional information they need for the provider to be able to customize the portfolio,” says Jason Shapiro, senior investment consultant at Willis Towers Watson in New York City. “They are not engaging to the extent they should be.”

John Doyle, senior vice president, defined contribution, at Capital Group in Baltimore, agrees. He says that the trouble with offering managed accounts on a retirement plan platform is that “70% to 80% of the participant population doesn’t get engaged. They are perfectly happy to make an investment selection and leave it alone, or default into the QDIA [qualified default investment alternative]. If you were to default a person into a QDIA with a higher fee [such as a managed account], you need to ask the question of whether he is getting the value of paying the additional 15 to 75 basis points [bps].”

Advisers and sponsors need to realize that each managed account provider will approach the task of collecting information differently, Doyle says. Today, the majority of providers collect basic information from the recordkeeping system’s electronic feed, whether it is the recordkeeper’s own feed or one through a partnership with a third-party recordkeeper, he says.

Ideally, the provider will make a point of speaking with the investor, so it can learn about his unique needs and all of his financial objectives such as saving for college, raising a child with special needs or achieving lifestyle goals, Doyle says. It can also be helpful to learn about the person’s total household assets and projected Social Security benefits, he says.

Still, Doyle is unsure how robust all managed account information-collecting processes are, or how proactive the managers are in continuing to reach out to their investors.

Over the past three to five years, Fidelity Investments has become decisively aware of managed account investors’ inertia, which is why it has developed a system with continuous touch-points to inspire those people to update their information and remain engaged, says Chad Elliott, senior vice president, workplace managed accounts at Fidelity Investments in Boston.

“Some portion of the population will always be harder to engage,” Elliott says. “But by integrating workplace managed accounts with the recordkeeping system and data aggregation tool, we can learn about your balance, savings rate, age and investment time horizon; this is the 60% of the profile that we can automatically update.
But 40% needs to be done in person.” Within the first 60 to 90 days after a participant selects a Fidelity managed account, the firm conducts a welcome onboarding campaign that emphasizes completing the profile and sets the person’s expectations for how the service works, Elliott says.

Willis Towers Watson advises plan sponsors that want to improve their participants’ outcomes to adopt a “hybrid” model, as Shapiro puts it: a target-date fund (TDF) as the QDIA alongside the option of a managed account. “Some providers and recordkeepers are beginning to talk about this—but we are in the very early days [of this becoming a reality],” he says.