Early Adopters of Managed Accounts Could See Larger Gains

As defined contribution plan participants crave increased personalization in their investments, managed accounts remain one of the most common—and perhaps lucrative—vehicles through which participants can satisfy their appetites, according to new research from Morningstar.

Morningstar simulated participant outcomes under a baseline scenario in which participants invested in either target-date funds or self-directed portfolios, then compared the results to a counterfactual scenario in which participants adopted a managed account at a cost of 40 basis points per year.

Adopting a managed account led to an overall increase of 7.7% in participants’ median lifetime wealth ratios—calculated by dividing current net worth by lifetime income—at age 65. Managed accounts gave do-it-yourself investors the biggest gains of 11.4%, while TDF investors saw a 5.9% increase. The benefits from managed accounts were most prominent among the youngest investors, ages 20 through 24, of whom the TDF investors increased their expected wealth/salary ratio by 9.9% and the self-investors did so by more than 22%.

“There’s a lot of debate in the industry regarding the appropriate time to introduce a managed account,” says Spencer Look, an associate director of retirement studies in Morningstar’s retirement group and one of the authors of a report on the study’s results. “For younger-aged participants, there’s a larger relative gain from adopting a managed account.”

Among all plan sponsors that responded to PLANSPONSOR’s 2025 Defined Contribution DC Survey, 43.6% said their organization used professionally managed account services as investment vehicles for participants. (PLANSPONSOR is a sister publication of PLANADVISER.)

Morningstar found that managed accounts generated the largest relative improvements for lower- and middle-income participants. Among those earning less than $100,000 per year, the median wealth/salary ratio rose by at least 4.3% for TDF investors and at least 10.9% for self-investors.

Aside from analyzing the early adoption and income factors, Morningstar’s research found managed accounts provided value across all plan designs, including those with automatic escalation features. For plans with automatic enrollment and auto-escalation, managed accounts improved the lifetime wealth ratios of TDF investors by 2.7%, and those of self-investors rose 7.8%. For those participating in plans with voluntary enrollment, the ratio increased by 6.7% for TDF investors and 11.7% for self-investors. Participants in plans that had auto-enrollment but lacked automatic escalation saw larger increases: 11.6% and 18.5%, respectively.

Criticisms of managed accounts include the vehicles’ high fees and lack of availability from providers. To illustrate the point, 70% of plan sponsors that responded to PGIM DC Solutions’ 2025 DC Plan Sponsor Landscape Survey said they would be interested in offering participants a managed account as an opt-in if the fee were 10 basis points or less.

“Despite the overall fee assumptions about managed accounts, it is noteworthy that [the research showed] an overall boost in outcomes,” Look says.

David Blanchett, managing director, portfolio manager and head of retirement research at PGIM DC Solutions, told PLANADVISER in February 2025 that providers should offer managed accounts as a competing solution to their TDFs to show that participants can be provided asset allocations based upon factors beyond age. He said consultants and large plan sponsors are “very aware” of managed accounts and that the overall availability of the accounts has already been increasing.

Morningstar’s Look says that while the research revealed encouraging findings about managed accounts, it does not analyze or advocate their potential as qualified default investment alternatives—that is something his team hopes to study in the future.

“There [will] be plans in which managed accounts could fit very well, and there are plans in which they won’t,” Look says.

The PLANSPONSOR DC Survey was fielded in mid-2025. The results incorporated the responses of 4,387 plan sponsors.

PGIM surveyed 302 retirement plan decisionmakers from September through October 2025.