Participants in Managed Accounts Miss Out on Personalization

They fail to provide the investment managers with the requisite information to take advantage of these customized portfolio services.

By Lee Barney | October 10, 2016
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If a retirement plan is going to offer a managed account to its participants, because so few participants are truly engaged with the plan, it certainly does not make sense to make the managed account the qualified default investment alternative (QDIA), industry experts say.

But even when a participant elects to invest in a managed account, the sponsor and the adviser should ensure that they are using them properly—since as many as half of participants fail to provide their profile information upfront as well as on an ongoing basis.

“We are seeing that 50% of the participants electing to use a managed account are not providing the additional information they need in order for the provider to be able to customize the portfolio,” says Jason Shapiro, senior investment consultant at Willis Towers Watson in New York. “They are not engaging to the extent that they should be.”

John Doyle, senior vice president, defined contribution, at Capital Group in Baltimore, Maryland, 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. 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 they are getting the value of paying the additional 15 to 75 basis points.” If they are not providing the information to the managed account provider that it needs, “it won’t be a precise portfolio.”

In addition, 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 off of the recordkeeping system’s electronic feed, whether it is their own or through a partnership with a third-party recordkeeper, he says. This includes age, income, account balance and savings rates, Doyle says.

Further, “a number of providers have partnered with or purchased data aggregation services that automatically pull all participant financial information into one place, allowing for real-time updates and an improved user experience,” according to a Willis Towers Watson white paper, “Are Managed Accounts a Better QDIA?”

NEXT: Additional information that is critical