Providers See Managed Account Growth in Personalization

Managed account providers argue that a key differentiator separating managed accounts from other defined contribution investment solutions is personalization, according to a recently published report by the Defined Contribution Institutional Investment Association’s Retirement Research Center, “Managed Accounts Today and Tomorrow: Industry Provider Perspectives.” The study was based on interviews with 12 recordkeepers and managed account providers conducted by the DCIIA in February and March.

As providers attempt to move managed accounts into a more prominent position on plan menus and into consideration to be qualified default investment alternatives, providers pointed to personalization as the service’s primary value proposition.

More Than an Investment Product

Unlike target-date funds, which default participants into age-based investment glide paths, managed accounts incorporate participant-specific information when making investment and retirement planning recommendations.

Providers interviewed for the report said managed accounts may consider factors such as outside assets, spousal income, retirement timing goals, risk tolerance and savings behavior when constructing portfolios and retirement strategies.

Across the interviews, providers also emphasized that managed accounts are designed to do more than allocate investments. One provider described a managed account as “not just a portfolio; it’s a financial plan,” while another argued that a key benefit is helping participants navigate the major financial decisions they will make throughout their working years.

Neil Davies, CIO of Edelman Financial Engines, told PLANADVISER in a previous interview that participants and plan sponsors should think of managed accounts as more than an investment product.

“What we offer that adds value beyond [investments] is the ability to take in a whole situation,” Davies said at the time. “We can look at all the accounts that are going toward retirement in one picture.”

According to Davies, managed accounts can account for factors that may fall outside of a participant’s workplace retirement plan, including outside investment accounts, changing financial circumstances and retirement income needs. He also emphasized the role of participant support and guidance, arguing that behavioral coaching can be just as valuable as portfolio management in helping participants stay on track for retirement.

The report also found disagreement about who benefits most from managed accounts. Providers generally agreed that participants with more complex financial situations and those approaching retirement may derive the greatest value from personalized advice.

Some providers argued that managed accounts can help younger participants establish positive savings habits and make informed financial decisions earlier in their careers. Others suggested target-date funds may remain the better option for workers with straightforward financial situations, citing lower costs and the benefits of broad market exposure.

Measuring the Value of Personalization

While providers largely agreed that personalization is the key benefit of managed accounts, they acknowledged that individualized outcomes can make success difficult to measure.

Because managed accounts are designed around each participant’s unique situation and goals, providers interviewed by DCIIA said traditional performance comparisons may not fully capture their effectiveness. One participant may prioritize retiring earlier, while another may focus on maximizing retirement income or preserving assets. As a result, providers said there is no single benchmark that can adequately measure outcomes across all participants.

“Managed accounts ultimately deliver personalization, and if personalization includes the consideration of outside accounts, as well as behavioral factors, there will always be an inherent difference in outcomes,” wrote Drew Maresca, DCIIA’s vice president of research, in an email to PLANADVISER.

As a result, providers often look beyond investment returns when evaluating outcomes. According to the report, many rely on before-and-after analyses or comparisons between users and nonusers, focusing on metrics such as savings rates, engagement levels, retirement-income projections and participants’ ability to remain invested during periods of market turbulence.

The report noted that participants enrolled in managed account programs often contribute more than those who do not use the service.

“We heard time and again that those enrolled in these services contribute more than unenrolled participants,” Maresca wrote. “Given the benefit of compound interest and longer timelines, especially for younger employees, contributing more might be the most important aspect of retirement readiness.”

Behavioral outcomes also emerged as a recurring theme from DCIIA’s study. Several providers argued that helping participants avoid costly investment mistakes during market downturns may be just as important as improving portfolio returns.

At the same time, providers acknowledged that effective personalization depends on participant engagement. According to the report, for advisers evaluating managed account offerings, no single service model fits every workforce

“All plans are not created equally, and neither are managed accounts,” Maresca said. “Successful plan advisers and consultants may want to review the details of managed account services with an understanding that what works well for one employer client may not work for the next.”