Managed account members are contributing an average of 9.1% of their income to their retirement account, compared to 7.8% for non-members and 7.4% for individuals primarily invested in a single target date fund (TDF).
This is a key finding from a new report released today by Boston-based independent wealth planning and workplace investment advisory firm Edelman Financial Engines (EFE), featuring data and insights gained from 20 years of helping employees save for retirement through its managed account program.
The report, Igniting Growth Through Innovation, is a first-of-its-kind analysis of data that spans more than a million program members across different ages and career stages, the largest employers across industries, and the leading retirement plan recordkeepers.
Another key finding is that nearly half of managed accounts members are 50 years of age or older (47%) compared to just 29% of primary TDF users, reinforcing that employees need and want a more customized approach to their planning and investment strategy as retirement nears.
“Once known simply as a 401(k)-asset allocator to improve retirement readiness, the managed account has evolved into a robust financial planning platform that has changed how millions of individuals receive professional financial help,” said Kelly O’Donnell, President, Employer Solutions, at Edelman Financial Engines. “The steady growth of managed account services and the continued demand we’ve seen from employers and employees over the past two decades reinforces the importance of high-touch financial advice and planning solutions within the workplace.”
With 45% market share and over $221 billion in assets under management, EFE said in a press release it is the largest provider of professionally managed accounts in the industry, serving 1.2 million program members across nearly 700 employers and a majority of the largest plan recordkeeping platforms.
Redefining participant success beyond traditional measures
The data also shows a rise in the number of people taking advantage of the ability to personalize their investment strategy. During the last decade, as a way to address the increasing consumer demand for customized experiences, EFE added tools and options that provide a more comprehensive, tailored service such as enabling employees to add spousal information, estimated retirement expenses, and other sources of retirement income (pensions, spousal pensions, IRAs, etc.).
The experience also includes interactive online levers to see in real-time how changes in contributions or retirement age might impact projected income goals. As a result of this, the number of members providing their personal data and preferences has more than doubled from 33% in 2014 to 74% in 2023. Greater personalization is critical for driving engagement and enhancing the success of managed account programs, as this can help create an advice experience that is geared more closely to a client’s needs and goals.
Additional insights from the analysis include:
- Savings rates: 74% of program users increased their savings rate within a year of enrollment, and 41% are saving over 10% of their income.
- Investment selection: 97% are appropriately invested compared to just 25% of their non-user counterparts.
- Company Stock Holdings: Heavy concentrations of company stock in an employee’s 401(k) poses a risk to proper diversification. Nearly all members hold less than 20% of their assets in company stock. In comparison, 4 in 10 non-members hold more than 20% of their assets in company stock.
- Social Security: Over the past two decades, EFE has found $36 billion in additional Social Security benefits for managed account members, an average of more than $148,000 per member.
- Confidence in investing: 80% feel more confident in their investment strategy than they would if investing on their own.
- Confidence in reaching goals: 94% of program members feel more confident that they will achieve their retirement goals because of the managed account solution.
The power of human advice
EFE’s research reveals that nearly all managed account members find value in having unlimited access to speak to a licensed, independent advisor as part of the solution. Most importantly, those that engage with advisors find the interaction valuable in helping to achieve their personal financial goals.
Market volatility can be one of the most important moments for employees to have the ability to speak with an advisor. Eighty-five percent of members that had a conversation with an advisor surrounding market volatility stated that the conversation prevented them from making a rash decision.
Additionally, retirement planning and retirement income are the top topics discussed with advisors. Transitioning to retirement can be a particularly complex and emotional milestone for employees and the ability to navigate it with an advisor who is free of product conflict is a valued, high-touch feature of managed accounts and not available with most other in-plan advice solutions. EFE’s embedded income solution, Income Beyond Retirement, helps employees build retirement income strategies with the support of an advisor.
Growth through innovation
Looking ahead, the EFE report notes there is ample opportunity to continue to evolve managed accounts and address the everchanging needs of both employers and their employees.
For example, the latest breakthrough technologies, including AI, can help create more personal, bespoke experiences for employees to navigate their financial lives. Additionally, employers can begin to expand plan design in ways that help drive employees towards the solution best suited for their needs and unique situations.
The automatic transition from a target date fund to a managed accounts as part of the plan design has benefits for both the employee and the employer. And there should be a day when comprehensive financial planning in the workplace is a standard employee benefit.
“We’re proud that our managed account services have empowered employees of all ages and wealth to save more and invest with confidence, while helping employers improve their financial wellness programs,” added O’Donnell. “Looking ahead to the next 20 years, we’re committed to driving even more innovation and progress in the industry by embracing technology to elevate the employee experience, supporting plan designs that drive employees to the right help, and eliminating barriers currently hindering employees from receiving the financial help they deserve.”
More data-driven trends from EFE’s 20-year history are available here.
SEE ALSO:
• Edelman Financial Engines Buys $453M Soundmark
• Voya Debuts Fund Expansion Within Advisor Managed Accounts Program
• Underutilized 401(k) Managed Accounts Breed Much Higher Retirement Confidence for Users
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
