Todd Kading, president of LeafHouse Financial, and Steve McCoy, chief executive officer of iJoin, recently sat down with PLANADVISER to talk about their collaboration on the newly released LeafHouse-iJoin Managed Account Program.

The pair said the “tech-fueled” offering is among a class of adviser-driven investment solutions coming onto the market that are “poised to disrupt the retirement plan industry.” In basic terms, the offering combines the capabilities of LeafHouse’s FlexFiduciary and reallocateIT portfolio management technologies and iJoin’s goals-based, personalized participant experience platform.

According to Kading and McCoy, the technology-driven efficiency of the new solution makes it possible to offer a personalized managed account program with 3(38) investment manager fiduciary coverage at a cost of as little as 6 basis points (bps)—not including investment expenses. As of its launch, the LeafHouse-iJoin Managed Account Program is available through more than 40 independent recordkeepers that deploy the iJoin platform, and McCoy says the number of recordkeeper partners could expand to 60 by year’s end.

Below is an edited summary of the dialogue with Kading and McCoy, who agreed to speak broadly about the retirement plan coverage gap, the development of adviser managed accounts, the future role of pooled employer plans (PEPs) and more.

PLANADVISER: Todd, can we address a simple question, but one that is important? What is an adviser managed account as opposed to what might be called a ‘traditional managed account’?

Todd Kading: It a basic sense, the term ‘adviser managed account’ is describing the concept that the program’s investment methodology works with a plan’s existing investment lineup, which will have been crafted by the plan sponsor in collaboration with the plan adviser. Traditionally, a managed account has been presented more as a ‘tack on’ or ‘bolt on’ solution, using sidecar investments that are not necessarily drawn from the curated plan lineup.

With the traditional approach, the adviser doesn’t necessarily have much of a say in terms of what is used in the managed account being offered by the plan sponsor. With our system, we’re using the actual lineup that the adviser is giving to us.

I would also point out that we have designed our system to be flexible enough to accommodate a lot of changes a plan sponsor may decide to make with its investment menu. For example, if you have a large blend fund that is replaced by a large value fund, some managed account systems will have trouble accommodating that change and they may in fact have to remove the plan sponsor from their service. Our approach is to use what we call a ‘next-best algorithm’ that can take the plan’s large value and large growth funds and use these as an effective substitute for that large blend fund that has been removed. As long as you give us a regulatorily compliant lineup with cash, fixed income and equity, we can turn back a portfolio.

PLANADVISER: Steve, it is interesting to report on these types of partnerships and to see the different ways firms can bring their skills to the table to solve a complex challenge. Can you speak to the fact that no single firm can be the best, for example, at both portfolio management technology and delivering a goals-based personalized participant experience?

Steve McCoy: First of all, this has been a really good collaboration over the past year or more, and the competencies and the technologies that Todd’s team brings to the table elevate what iJoin is able to do. Our recordkeeper integration capabilities and our participant experience are our core competencies, and we are able to rely on LeafHouse’s strong technical abilities.

Another word on our recordkeeper partners: We all know the recordkeeper market is evolving, but our relationships are strong, and they are getting stronger, especially as we improve our deliverables and our skill sets. Our recordkeeper partners are focused on three things. First, the opportunities brought about by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, with respect to the creation of the pooled employer plan (PEP) marketplace. Second, and an area that we are very active in, is personalization, and how personalization is evolving and changing with the industry’s focus on technology and scale.

The third point of focus and collaboration in the industry is the regulatory changes, again coming out of SECURE, that made it easier for annuities to be put inside of a retirement plan and for investors to have access to guaranteed retirement income. We are at the intersection of all of those trends.

Kading: I would add that LeafHouse comes at this discussion a little differently than iJoin. Our largest relationships are with the recordkeepers that are on the mega end of the spectrum—from Fidelity to Empower. At the same time, iJoin has really done a great job partnering across the recordkeeper market, including with the smaller firms.

Together, our solution can help these smaller recordkeepers that may not have proprietary investment products to supplement their business model to be very competitive in the marketplace. We can help them to deliver a managed account solution as an administration service and get a small fee directly for that. This revenue can be very beneficial for their business while also letting them go to market with very competitive fees.

PLANADVISER: Todd, can you talk about the weakening distinction between technology firms and financial services firms?

Kading: Yes, I would simply point out that, when we set out to create an adviser managed account solution that would fit within the iJoin interface, our chief technology officer, Dale Homburg, was a huge part of the effort. He came to us from the video game industry, in fact, where he had been a very successful artist and technical leader. He is able to use his genius, frankly, to go into our financial brains and pluck out the things he needs to do to create the back end and the front end of these systems. It’s really a lot of development work and the technology is so critical.

PLANADVISER:  Can this type of scalable investment management technology be useful in addressing the retirement plan coverage gap that persists in the U.S., even as defined contribution (DC) plans help some Americans generate substantial wealth?

Kading: I’ll jump in first and say the coverage gap is 100% something we think about at LeafHouse, and the goal of solving it drives a lot of the things we are doing and trying to do. Working to make great investment management services affordable and broadly available is critical.

We have seen the government step in and try to fill this gap, by creating new types of government-administered options, but I think it is overlooking the fact that investment services have to be actively distributed to become popular. It’s that simple. In that sense, I think the fact that the SECURE Act has given the private marketplace the space for the development of PEPs is really important. I do believe the private industry is going to do a lot more to close the gap over the next few years. It’s very exciting.  

McCoy: I agree with that. I would just add that personalization is everywhere in our lives and our economy these days, and it is coming to financial services. There is no good reason why personalization and managed account solutions should only be available to high-balance participants or those who are late in the accumulate phase. These services should be affordable and available to every single investor in a 401(k) plan and for every plan sponsor that wants to deploy them.