Magazine

Data Points | PLANADVISER March/April 2017

Use of Managed Accounts

We look at whether the use of managed accounts paired with the oversight of an adviser results of better outcomes.

By Lee Barney editors@planadviser.strategic-i.com | March/April 2017

As retirement plan sponsors increasingly embrace the importance of improving retirement readiness outcomes for their work force, some are becoming more receptive to the use of managed accounts.

However, whether the combination of a skilled adviser and managed accounts can improve plan outcomes does not have a simple answer. In fact, unlike past years’ PLANSPONSOR Defined Contribution (DC) surveys, our latest found that plans with managed accounts overseen by an adviser have, overall, lower deferral rates and average balances than other plans, although once you dig into the information, bright spots appear. Is this, perhaps, a wake-up call to advisers to create demonstrably better outcomes to justify the usually higher cost of managed accounts?

The one area where advisers seem to make a difference vis-à-vis managed accounts is in choosing them as the qualified default investment alternative (QDIA); 7.9% of plans with an adviser make their managed accounts the QDIA, compared with 5.7% of plans without an adviser.

Participants’ average deferral rate into managed accounts, when those are the QDIA and are guided by an adviser, is 6.1%—6.7% without an adviser. Interestingly, the worst outcomes are when the adviser serves the plan not as a 3(21) or 3(38) fiduciary but in no fiduciary capacity at all. When advisers serve as a 3(21) fiduciary, the average deferral rate approaches that of plans without an adviser (6.6%).

Further, for adviser-led plans with a managed account as the QDIA, not even one-third (28.6%) default participants into a deferral rate greater than 4%, according to responses—whereas 40.0% of plans without an adviser have switched to a greater than 4% deferral rate. This begs a similar question:­ If an adviser has convinced his plan sponsor client to go to the trouble of using a managed account as the QDIA, how can he get the participants to the doorstep of the right outcomes if the plan defers their contributions at a rate below 4%? This may be why the average balance in plans that have managed accounts as the QDIA and are overseen by an adviser is $81,188—but $96,322 in plans not overseen by an adviser.

 QDIA = Managed AccountOffers Managed Account
With adviser7.90%39.00%
3(38) fiduciary7.60%41.20%
3(21) fiduciary6.50%36.20%
Not fiduciary13.60%42.90%
Don’t know8.00%41.20%
No adviser5.70%29.50%
Deferral RatesQDIA = Managed AccountQDIA = OtherNo QDIA
With adviser6.10%6.70%6.50%
3(38) fiduciary6.40%6.30%6.10%
3(21) fiduciary6.60%7.00%6.90%
Not fiduciary4.70%5.80%6.30%
Don’t know6.40%6.60%6.50%
No adviser6.70%6.80%6.70%
Average BalanceQDIA = Managed AccountQDIA = OtherNo QDIA
With adviser$81,188$88,523$86,724
3(38) fiduciary$53,630$87,192$84,593
3(21) fiduciary$110,561$93,653$96,243
Not fiduciary$64,882$79,228$87,909
Don’t know$60,439$83,129$74,782
No adviser$96,322$95,283$92,335
Default Deferral >4%QDIA = Managed AccountQDIA = OtherNo QDIA
With adviser28.60%31.10%NA
3(38) fiduciary33.30%31.80%NA
3(21) fiduciary28.60%35.70%NA
Not fiduciary8.30%22.40%NA
Don’t know42.90%25.70%NA
No adviser40.00%27.90%NA
Source: 2016 PLANADVISER Defined Contribution Survey. NA = Not Applicable