Managed accounts make sense, and offer an important advantage over many of their retirement saving product counterparts—customization.
Boston-based research bigwig Cerulli Associates claims that despite scrutiny over perceptions of high cost and low transparency, managed accounts present “optimized asset allocation at the individual participant level. To combat these apprehensions, sponsors need to consider positioning managed accounts as a valuable service and focus on the benefits of customization and personal advice.”
“A study by the Government Accountability Office indicates that managed account users tend to have higher savings rates and better diversification,” Onkita Ganguly, an analyst at Cerulli, said in a statement. “A managed account takes into consideration that each account holder’s financial situation is different, whereas target-date funds are based on anticipated retirement age, with no customization.”
“While managed accounts have a lot to offer to the retirement market, research shows that target-date managers do not see managed accounts as a threat,” Ganguly added. “The percentage of defined contribution plans offering managed account programs has increased, but the percentage of plan participants using these programs remained steady during the past 5 years.”
Fee anxiety and the challenge of benchmarking portfolio performance causes managed accounts to be labeled as a “black box.” Given these challenges, Cerulli suggests that plan sponsors position them as a service rather than a competing product offering.
“As an investor ages and their financial situation becomes more complex, he or she is more likely to seek a financial representative for advice,” Tom O’Shea, an associate director at Cerulli, noted. “When advising a retiree to roll over 401k assets, advisors should convey to investors the benefits of personalization available with managed accounts to address their questions about fees.”
Educating investors about how managed accounts can meet their unique cash flow needs in retirement can ease their concern over higher costs.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
