With 75% of the 20 largest plans having their sights on this option by year-end 2004 combined with other expansion plans in this area, by 2005, a managed account option will be available to at least 5 million plan participants, with more than a million of those electing to have their plan assets invested professionally through a managed account. Continuing along this growth trend, assets in these programs will total approximately $50 billion by year-end 2005, and over $600 billion – 10% of all defined contribution assets – by 2010, according to results of NewRiver Inc. survey.
Plan providers expressed optimism in the impact these plans will have on their participant base. Among the reasons cited by plan providers for offering a managed account were better asset allocation for participant assets and increased participant contributions. Additionally, plan providers see this option as a means to reduce their fiduciary risk by providing the option of professional management to plan participants. Overall, providers project participants will be charged on an asset-based fee, anticipated to range from 0.20% to 0.75%.
Citing criteria laid out in a December 2001 Department of Labor Advisory Opinion, NewRiver says the managed account programs will be provided largely on an automated basis, using a variety of tools that include:
- computer-based asset allocation
- portfolio optimization
- risk management
- portfolio rebalancing.
The survey found providers are expecting the managed account model to be more readily accepted than advice alone, with annual adoption rates among participants growing at approximately 20% annually over the next five years.
“We believe that the managed account option has the potential to revolutionize defined contribution plan offerings,” stated Darlene DeRemer, Executive Managing Director at NewRiver. “DC participants clearly want, and need, more assistance and help, with the demand for advice continuing to increase as assets in defined contribution plans continue to grow. Many participants simply do not want, do not know how, or do not have the time to manage their own accounts.
The survey is based on responses from 24 of the 50 largest defined contribution plan sponsors. Those responding represent approximately $1.7 trillion in defined contribution assets, and more than 45 million plan participants.