Personalization, customization, individualization—industry terms tossed about for some time. But largely thanks to new technology, it’s happening now, and it’s incredibly exciting.
The announcement in April of the blockbuster deal between OneAmerica® and Russell Investments to offer Personalized Retirement Accounts (PRA) certainly got attention, but it’s really just an extension of a singular focus on the client, something emphasized by Sandy McCarthy since joining the OneAmerica Retirement Services division as president last year.
The next-generation managed account solution automatically incorporates participant characteristics such as retirement account balance, savings, salary, gender and age and can also take into account assets held away from the employer’s retirement plan, a critical step in achieving clarity, and more successful investment outcomes, for the individual.
Built on cutting-edge automation and money management from a venerable firm, all packaged in an intuitive user experience that adheres to all the latest cybersecurity protocols from OneAmerica, it’s rightly changing the conversation from funds, fees and fiduciary to retirement readiness.
McCarthy’s enthusiasm for Personalized Retirement Accounts (PRA) is palpable. A 30-plus year industry veteran, she sat with 401(k) Specialist to discuss their role in retirement planning, the innovation on which they’re based and what it specifically means for advisors and clients.
When we discuss concepts like retirement readiness, or a “number,” it’s typically based on age. How is this different?
The exciting part about Personalized Retirement Accounts (PRA) is that it’s more in line with a managed account solution, but takes it to the next level. A target-date fund is very popular and intended as a no-fuss, fast, easy-to-use product, but it’s anchored on the participant’s age; what we find is that there is much more than age to relate to in order to be ready for retirement.
We have taken that next step, and we’ve worked with Russell Investments to be able to offer something that is much more substantial, and with a higher level of customization around demographic and financial information that goes beyond the participant’s age.
Things like gender, balance, contribution rate or even geographic location become critical data elements as we think about honing in on what the real meaningfulness is of that targeted income level at retirement.
With this model, we’re able to provide the participants with a personalized asset allocation for themselves.
It’s hard to get supplemental information about assets held away, which is a criticism of target-date funds, in particular. Do Personalized Retirement Accounts solve for that?
The great thing about PRA is that not only can it solve for participants who don’t engage by automatically taking into account data points housed in our recordkeeping system such as account balance, contribution rate, gender, salary and age but PRA can also take into consideration their relevant external financial data (IRA balances, a spouse’s retirement assets, income from rental property or whatever they may have for a more complete financial picture). Each participant’s customized asset allocation is assessed quarterly and adjusted as needed based on progress toward his or her retirement income goals. PRA performs an analysis of whether a participant is on track to meet their retirement income goal and recommends an appropriate strategy to achieve the desired result based on the retirement income the individual is aiming for. There’s more of a holistic financial picture.
It’s all about modeling, and the work that Russell Investments has done in terms of analyzing asset allocation models and asset classes and then overlaid with all the information we hold and can access in our databases. The individual can access it several ways and, of course, security is top of mind.
What does it all mean specifically for the retirement plan advisor?
A few things. The advisor retains, as always, their very significant role in working with the plan sponsor. PRA is a continuation of the plan design and a continuation of the evaluation of investment choices, because the investment choice is part of the equation that feeds the model.
PRA helps complement what advisors provide to the retirement plan sponsor, whether it’s with one-on-one sessions or providing high-tech solutions through the secure website.
However, one of the things we’re speaking with the advisor community about is how they get to the “hearts and minds” of the individual with a layer of focus on the employer’s culture. The reason is that not only is financial wellness meaningful, but it’s also the employee engagement and satisfaction that ultimately leads to higher retention for the employer.
How are the fees structured?
Fees will range, on an overall basis, between 18 and 33 basis points today. That compares with fees for an upfront managed account solution that generally tend to be about 50 basis points.
Who is the ideal client or participant for Personalized Retirement Accounts?
Our experience has been that it doesn’t matter if the employer is small or large, blue-collar or white-collar, tech company or manufacturer, even an accounting firm or an investment advisory firm—the plan participants can use the help and it doesn’t matter if they have a small balance or a large one. Focus on the individual need translates across every industry and every type of person, so interest is coming from advisors as well as plan sponsors. From speaking with our Client Advisory Council, and the Advisor Council, these are the kinds of things that they are looking for.
I just had a retirement plan advisor here to speak with the OneAmerica board of directors. We talked about Personalized Retirement Accounts and how meaningful they can be in terms of addressing retirement readiness.
So, it’s fully scalable for any sponsor and any participant?
Absolutely.
Cybersecurity is obviously a major focus—how are those concerns addressed?
Whenever you look at the evolution of technology, it has always been around core capabilities, total accessibility, reliability and all those great things. But in the age of cybersecurity, we have supported all that effort and are prepared to deliver a high confidence level to the sponsor and the advisor. The risk management protocols at OneAmerica are extremely robust, and cybersecurity is subject to the same processes and terms.
What is the biggest and best argument for Personalized Retirement Accounts?
PRA gets to the hearts and mind of the individual, and it’s more precise and intricate. It addresses the individual’s needs and incorporates important data elements, as opposed to focusing purely on age. Russell Investments has an extensive background in liability-driven methodologies and strong asset allocation capabilities, not to mention PRA and its ease of use. To be able to go into the Personalized Retirement Planner, input information on additional, outside assets and have that updated automatically, is something that individuals like. The ultimate goal is retirement readiness, and this allows us to be much better aligned and focused on that.
Why is a client-focus like this so important?
The OneAmerica PRA offering is not a one-time initiative but in fact a statement to the industry about how we’re acting on behalf of the individual, and aligning retirement assets with other life-impacting, future-focused expenditures such as 529 tax-advantaged investments to caring for aging parents. We’ve lined up around accumulation thus far, but now we’re lining up around adding other financial tools that could be helpful during decumulation as well such as protections for long term care and disability insurance for paycheck protection. We’ll get to our customers early, so they are prepared.
OneAmerica® is the marketing name for the companies of OneAmerica. Products issued and underwritten by American United Life Insurance Company® (AUL), a OneAmerica company. Administrative and recordkeeping services provided by McCready and Keene, Inc. or OneAmerica Retirement Services LLC, companies of OneAmerica which are not broker/dealers or investment advisors.
Lifetime income is not the only annuity payout option and the individual should consider with care their specific needs and financial situation prior to annuitizing.
Russell Investments is not an affiliate of any OneAmerica company.
Personalized Retirement Accounts are a product of Russell Investments Capital, LLC. Personalized Retirement Accounts utilize processes and components of Russell Investments’ U.S. patent number 8,671,045, entitled “Method and System for Implementing an Adaptive Investing Methodology.
Investing involves risk including potential loss of principal. The use of asset allocation or diversification does not assure a profit or guarantee against a loss.
Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
The views and opinions expressed in this material are solely those of the author and do not necessarily reflect the views and opinions of any of the companies of OneAmerica. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
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.
