Presenting Managed Accounts as a Service Could Reduce Apprehensions

Cerulli Associates suggests that if retirement plan sponsors position managed accounts as a valued service it could alleviate concerns about costs.

As managed accounts continue to progress in the 401(k) industry, latest research from Cerulli Associates finds this unique investing strategy can see further development in 2018, with the use of proper participant awareness.

Despite its growing popularity, the fourth quarter issue of The Cerulli Edge reports that managed accounts have been scrutinized for higher costs—in comparison to alternative strategies—and low transparency. Since managed accounts have such high customization—personalizing a participant’s retirement future based on specific needs, fees tend to be pricier, along with other challenges. Cerulli suggests that if sponsors position managed accounts as a valued service with benefits including customization and personal advice, then apprehensions could simmer.

“A study by the Government Accountability Office indicates that managed accounts users tend to have higher savings rates and better diversification,” says Onkita Ganguly, an analyst at Cerulli. “A managed account takes into consideration that each account holder’s financial situation is different, whereas target-date funds [TDFs] are based on anticipated retirement age, with no customization.”

Additionally, Cerulli says these higher fees, along with the challenges surrounding an unclear benchmarking performance due to elevated customization, can label managed accounts in a sort of “black box.” To lessen these obstacles, Cerulli recommends plan sponsors position the strategy as a service.

“As an investor ages and their financial situation becomes more complex, he or she is more likely to seek a financial representative for advice,” says Tom O’Shea, an associate director at Cerulli. “When advising a retiree to roll over 401(k) assets, advisers should convey to investors the benefits of personalization available with managed accounts to address their questions about fees.”

Information about purchasing the fourth quarter 2017 issue of The Cerulli Edge—U.S. Managed Accounts edition can be found here.