What can managed accounts really do for participants?
A new white paper from Empower Retirement quantifies the potential value managed accounts add when offered as an option in 401k plan menus.
The Denver, Colorado-based company finds that a “robust account provides 55 to 92 basis points of value for unengaged participants and an impressive 152 to 258 basis points for engaged participants.”
While the paper notes many defined contribution plans today offer a managed account option, “there is no standard method for valuing these accounts that considers the full range of potential product features and their financial impact.”
Empower adds that historical investment performance does not serve as an optimal measure of value.
“The first retirement managed accounts were launched in 2004. Today about $180 billion in defined contribution (DC) assets are managed by these services,” writes Brian Cosmano, vice president of Strategic Product Initiatives. “Despite their popularity, managed account products have no benchmark or value estimation framework.”
Contrasting managed accounts with other default options like target date funds or balanced funds, Cosmano identifies three key differences—their “more personalized investment management, financial planning and the ability to mitigate negative behavioral tendencies.”
“All these features have value. Assuming the value exceeds the cost of the service, [managed accounts] should be considered as default investment options relative to target date funds.”
The white paper was released on the same day Empower launched My Total Retirement, “an end-to-end retirement management experience for plan participants.”
The solution helps an individual from the goal-setting stage at the start of their career through a withdrawal strategy that’s implemented when their working years conclude.
According to Empower, My Total Retirement blends a traditional retirement managed account with a digital and mobile multi-touch experience designed to help meet the needs of today’s employees.
My Total Retirement allows employees to:
Personalize their strategy: The new offering creates full alignment with each employee’s life situation and goals to create a holistic view of all relevant information from inside and outside the retirement plan.
Manage as needs change: Participants will have access to ongoing professional investment management, with regular reviews and access to one-on-one support with investment adviser representatives.
Transition to retirement: As one’s working years draw to a close, their strategy shifts to a focus on capital preservation with steady retirement income.
Optimize for Social Security: Participants can receive guidance to help get the most from Social Security.
“No two retirement plan participants are created equal. Each has their own needs, goals and dreams and Empower is taking action to offer a more fulfilling retirement planning experience,” Edmund Murphy, president of Empower Retirement, said in a statement. “We will be offering My Total Retirement so that employers and their advisers can help employees with a holistic retirement planning experience that goes beyond savings and investing.”
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.
