Is A Big Shift to Managed Accounts Likely?

One retirement planning industry executive feels TDFs have done a lot for a lot of people, “but it’s time to go from a good idea to a great idea.”

It was only about a decade ago that Stadion Money Management, which bills itself as a defensively oriented money manager committed to using exchange traded funds (ETFs), first started to offer a target-date fund (TDF) series to institutional clients, says Tim McCabe, senior vice president and national retirement sales director.

“And full disclosure, we are still committed to our TDF product lines and the opportunities that will continue on that side of the business, but we are very excited to announce a new push into managed accounts,” McCabe tells PLANADVISER. “TDFs have been a great first step for everyone, getting people into the ballpark post-[Pension Protection Act] on where they should be with asset allocation, but we can do better.”

McCabe says for Stadion, doing better in the qualified default investment alternative (QDIA) slot means leveraging new technologies to bring to market an affordable new managed account service that delivers greater customization than a TDF, “and for about the same price.” According to McCabe, a new Stadion offering called “Storyline” brings just such capabilities to defined contribution (DC) plan participants.

From the participant service perspective, the Storyline product seems to be in line with other managed account services already available in the market, but McCabe is particularly enthusiastic about the pricing and the general opportunity surrounding managed accounts. He says managed accounts are likely to become more and more viable as a QDIA opportunity for smaller and smaller plans, especially with rapid technology innovation sweeping into the financial services space.

“What we’ve done with Storyline is that everyone is going to get the chance to write their own story,” he explains. “It’s the next chapter for how money will be managed. It will mean more customization than a TDF, which only looks at plan populations. It means more personalization and better outcomes.”

NEXT: Addressing leakage and other issues 

McCabe feels managed accounts are poised for strong growth in all segments of the retirement planning market because “simply basing someone’s investment allocation on age is not good enough, especially when the technology capabilities are coming into place to do so much more than that.”

He observes “most of the people who own TDFs also own something else, so right off the bat you’re missing the proper asset allocation and throwing off the risk and return budgets.” Over time, as participants gain other assets/liabilities outside the 401(k) account balance—as many do—McCabe says the drift in a person’s true risk-return profile versus what the TDF is delivering can be substantial.

“With a product like Storyline, we can use the data we have on a participant to refine the risk tolerance beyond what is possible with a proprietary or even a customized TDF,” McCabe explains. “The technology is finally coming into place where we can efficiently deliver this kind of service much further down market. As you know, we are not a provider focused on mega plans. We are very much targeting small plans with this service.”

McCabe says plan sponsors will be able to get access to the managed accounts for a fee of around 45 to 55 basis points per year, which he says is in line or better than many TDF suites.

“We will continue to refine the product and our service, but for right now the most important thing is getting people into the most tailored glide path we can that includes all this outside information,” McCabe concludes. “The other big component is gamification. We have designed the system so participants can go in and play around with the savings variables and envision what a more successful plan would look like. That’s the first step for a lot of people.”