Managed Accounts, TDFs or Both?

For years, the retirement plan industry has debated whether managed accounts could replace target-date funds as the qualified default investment alternative of choice, but TDFs still have the lion’s share of defined contribution plan participant assets. According to data collected in the the 2025 PLANSPONSOR Plan Benchmarking Report, TDFs were offered in 92.8% of DC plans, while managed accounts were only offered in in 47.9% of DC plans. (PLANSPONSOR is the sister publication of PLANADVISER.)

The disparity makes sense to Sean Kelly, a Heffernan Financial Services vice president and financial adviser. TDFs dominate due to the simplicity of their age-based horizons and low costs.

“It’s all about [participant] engagement and we don’t get a lot of it,” said Kelly on a November 4 panel at this year’s PLANADVISER 360 conference in Scottsdale, Arizona. “If you’re not going to get a lot of it, what’s the easiest, least expensive, performance-based solution?”

Another panelist, Andrea Cummings, Principal Financial Group’s director of strategic partnerships, retirement and income solutions, countered that target-date funds are not very helpful, given how people with the same age can have radically different finances. With managed accounts, participants can provide more complete information about demographics, finances and outside assets, resulting in more personalized plans.

“If I were to walk into a wealth manager’s office, and the only question that they asked me was, ‘Andrea, how old are you?’ I don’t think I would want to pay very much for that service,” Cummings said.

The third panelist, Bill Ryan, a partner in and the head of defined contribution solutions at NEPC, said that the benefits of managed accounts, such as , are often eaten away by high fees. Based on his research, Ryan said that managed accounts that charge 2 basis points could scale and replace TDFs without reducing industry revenue, but currently he sees providers charge 15 bps to 25 bps, plus additional service fees.

“Managed accounts and recordkeepers split 50-50, and so there’s incentives for both providers to sell these products,” Ryan said.

The panel’s moderator, Rob Massa, managing director at Prime Capital Financial, noted that managed accounts cost a fraction of what it would cost to hire independent wealth managers, who charge 80 bps to 125 bps for their services. Although the panelists said managed accounts tend to have single-digit-percentage adoption rates, Massa said he saw 20% adoption rates in some workplaces, when employees realize what managed accounts could offer.

“It depends on how you, as an adviser, are educating employees, spending time with them and promoting [managed accounts] as an alternative for them,” Massa said. “The cost of the advice that they get inside the retirement plan is a fraction of what they would get if they went to an independent wealth manager.”

Managed accounts can make sense when contemplating retirement income, Cummings said, specifically speaking to hybrid options. These allow early-career participants to start with TDFs, then switch to managed accounts as they age and their finances become more complex. Managed accounts can integrate retirement income solutions, such as annuities or dynamic withdrawal strategies, and adjust based on health, spending patterns and other personal data.

“Managed accounts get you to and through the finish line,” Cummings said. “Having something like income integrated into that can really change the game.”