The Personalized Choice

Plan sponsors find added value of the managed account as a qualified default investment alternative

photo of Kent Peterson

Kent Peterson, second vice president, chief financial officer (CFO) and actuary at Securian Financial

Say there are two 40-year-old employees: One defers 10% and has $500,000 saved; another defers 2% and has $50,000 saved; both plan to retire on the same date. Should those investors have identical investment portfolios?

Kent Peterson, second vice president, chief financial officer (CFO) and actuary at Securian Financial, spoke with PLANADVISER to discuss why the answer to that question is no and why a fiduciary might want to consider managed accounts for the plan’s qualified default investment alternative (QDIA)—understanding individuals vary in what they’ve saved and how much risk they should take or avoid.


PLANADVISER: What could lead plan sponsors to think this is the time to reassess their QDIA choice?

photo of Kent Peterson

Peterson: When participants are left to their own devices, many of them make poor investment decisions. Often this is the result of emotional decisions, when they feel overwhelmed or lose confidence in how they’ve invested. That hurts their long-term financial security and retirement income adequacy.

As an industry, we’re searching for ways to make it simple for participants to invest retirement savings and build their confidence. Target-date funds [TDFs] helped when they emerged because they simplified things. But some TDFs lack transparency—as many participants don’t know what they’re invested in.

Particularly after a market crash, participants may lose some confidence in their retirement investments: “I thought I was protected, and I really wasn’t.” Most never checked the fact sheet to see their underlying holdings, especially in a do-it-for me solution.

Also, TDFs are allocated based on a single factor: the year one plans to retire. People consider multiple factors when making other long-term personal financial decisions, such as buying a car, saving for kids’ college or buying a home. Retirement investing is also a big long-term decision that may be well served by considering more factors.

With Securian Financial’s Target Pro™ Portfolios, our managed account solution, we address both of these issues. Multiple personal factors are considered in the asset allocation process, with no required employee engagement, and we’ve increased transparency—so participants can see they have multiple investments.

In this world of different platforms that personalize their experience, I think people expect personalization in saving for retirement, too.

There are ways to deliver the personalized experiences that will ultimately drive employees toward retirement adequacy. The key to success is ensuring that all parties align with this opportunity. We believe in a four-way alignment of best interests—for participants, plan sponsors, financial professionals and our company. We just need to ensure, if we benefit, that it’s fully transparent and broadly beneficial.

Where managed accounts once were more costly, we now offer a personalized portfolio at a comparable price point with an actively managed TDF. Even if a managed account solution does cost more, I think individuals are OK with having a cost that’s additive if they understand the value of personalization and see the benefit to their financial outcome. That should reassure plan sponsors and financial professionals that they can offer a low-cost managed account solution that supports fiduciary roles and helps improve participant outcomes.


PA: What drives the belief at Securian Financial that managed accounts are a better QDIA than a target-date fund?

photo of Kent Peterson

Peterson: Historically, we’ve kept fiduciary roles at the forefront—as well as the need for building trusting relationships with participants. We appreciate that there isn’t just a single QDIA solution that fits every plan. With that said, if plan fiduciaries are concerned about a one-size-fits-all approach given a plan’s disparate employee population, a low-cost managed account may provide the desired level of personalization. And the reasonable cost provides assurances to plan fiduciaries that it’s a prudent QDIA choice.

When TDFs first arrived, they helped participants with the idea that investment risk and allocations should change as they move along their investment time horizon. This was a positive change from a static asset allocation.

However, not all participants are in the same financial situation or have the same needs and time horizon. Managed accounts are the next evolution for helping them experience a personalized investment strategy based on their factors, not the average, to achieve their individual retirement goal.

We initially took the path of model portfolio solutions offering choice aligned with fiduciary requirements and employees’ risk appetite—and participants could see they held nine different investments.

When the markets collapsed in 2008 through 2009, many participants were concerned they had lost significant money and hadn’t known they were in equities. Our clients had model portfolio solutions as the primary QDIA, and participants always knew they were in equities and fixed income. Their statements showed them, “Yes, my equity positions went down, but my fixed income generally went up.”

We felt transparency for the participant was critical and we still feel that way, which is foundational with our Target Pro Portfolios.


PA: How does one engage participants with the managed accounts?

photo of Kent Peterson

Peterson: We know participant engagement has traditionally been a hurdle with managed accounts. That’s why we created a solution where participant engagement is not a must, but an additive. Using data already provided instead of building out systems and expecting employees to act streamlines processes and keeps costs reasonable. And participants can add additional data points, if desired, to support even more personalization.

The portfolios are adjusted to manage risk, react to market fluctuations and rebalance individual allocations as needed, but it’s critical to keep employees in touch with their retirement savings.

Our mobile app is changing how we engage with them. We all have smartphones—whenever a notification appears on an app many people are intrigued and are likely to take a look. Participants can click into the app and respond, “Yes, this is still my life situation,” or “No, it isn’t.” Then they can click an option to update their personal factors, which will revise their asset allocation. I think managed accounts also provide the potential for engagement, even though they’re kind of a set-it-and-leave-it investment.


PA: How can plan sponsors maximize a managed account program?

photo of Kent Peterson

Peterson: It comes down to financial professionals fully understanding the accounts so they can recognize and communicate benefits to the plan sponsor.

One of the biggest headwinds for success in investing is not overpaying for the solution. When managed accounts first came out, they were expensive. That’s why many plan sponsors struggled with, “Is this something I want to make available?” Or they were uncomfortable making it the default, versus a choice, because that indicated the expense was prudent for all of their investors. So, the price coming down makes it more beneficial to a broader array of plan participants.

QDIA re-enrollment is also a key consideration. If a plan sponsor and financial professional believe in the managed account program benefits, this would be a way to get the broader participant base an improved personalized asset allocation. The re-enrollment process tends to have staying power and a limited negative participant reaction when there’s a good communication plan.

Managed accounts can be easy to understand and more transparent than funds where there’s a need to evaluate each underlying mutual fund. You know what investments are inside your managed account solution because you’ve already blessed them. Since those are the same investments that get used in your personalized portfolios, that’s a win. It’s a valuable opportunity for financial professionals to help sponsors understand the simplicity and value of this approach.

1 PLANSPONSOR, “Majority of 401(k) Participants Would Like Online or Financial Professional Help.” August 2018.

2 Professional Investment Assistance Report: The impact of managed accounts and target date funds in defined contribution plans 2018. Alight Solutions.

3 Decoding the Millennial Mindset: 2018 Broadridge Financial Solutions, Inc., and the Center for Generational Kinetics, LLC.

Target Pro Portfolios are based on generally accepted investment principles, leverage employee data already in the plan and are created and maintained by a plan’s Registered Investment Advisor. The assets of each Target Pro Portfolio are held in a group variable annuity contract issued by Minnesota Life Insurance Company as selected by the plan sponsor. Securian Financial provides the administrative record keeping services for the portfolios and charges a fee for this service. Stadion Money Management, LLC., provides the Target Pro allocation services. Stadion Money Management, LLC, is not affiliated with Securian Financial Group or Minnesota Life Insurance Company.

Stadion Money Management, LLC (“Stadion”), is a registered investment adviser under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. More information about Stadion, including fees, can be found in Stadion’s ADV Part 2, which is available free of charge. Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money.

These materials are for informational and educational purposes only and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its subsidiaries, have a financial interest in the sale of its products.

Securian Financial’s qualified retirement plan products are offered through a group variable annuity contract issued by Minnesota Life Insurance Company.

Securian Financial is the marketing name for Securian Financial Group, Inc., and its subsidiaries. Minnesota Life Insurance Company is a subsidiary of Securian Financial Group, Inc.

For financial professional or plan sponsor use only.

1591996 7-2021