401(k) Managed Accounts Work: Vanguard Study

The benefits of managed accounts are many and varied, according to a new report from Vanguard. The study, appropriately titled “The Value of Managed Account Advice,” finds that most participants adopting managed account advice realize value in some form.

“For a large group of participants, advice leads to higher projected retirement wealth due to increased expected returns and savings,” the authors write. “For a smaller group, advice leads to reduced risk exposure, resulting in lower expected returns and projected retirement wealth but better portfolio diversification.”

The report notes that, to date, few studies have addressed the impact of managed account services on both saving and investment behavior. This is due in part to managed account advice being viewed predominantly as an investment advisory service. In contrast, Vanguard considers the impact of advice on all the components that impact retirement wealth, including savings, portfolio expected returns and risk, and investment and advisory fees.

Additional findings include the following:

“A managed account advisory service can be an effective tool to improve outcomes for defined contribution plan participants,” the report concludes. “The benefit depends on the fee charged for the service relative to improvements in investment allocations and savings behavior. Plan sponsors should consider offering professional advice programs as a complement to other professionally managed vehicles, such as target-date funds. Because of the powerful effect of savings increases on wealth outcomes, managed account providers should also consider expanding efforts to promote improved savings rates.”

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