It’s been rumored for a while and now it’s official; Schwab will up the 401(k) customization game by offering RIAs in the 401(k) space a chance to build and manage investment portfolios for the plans they support. The new service will use managed account technology from Morningstar.
“This new approach greatly expands the capabilities of consultants who serve as registered investment advisors and investment managers for retirement plans and the participants in those plans,” according to the company.
“We see plan participants as savers more than investors, and for that reason we feel the advice aspect is critically important for them to be able to access,” said Steve Anderson, president of Schwab Retirement Plan Services. “The platform is completely open architecture; for instance, retirement plan advisors can include active mutual funds, CITs, ETFs and even fractional shares, so every dollar is fully invested and it’s completely scalable.”
He notes that many employers rely on their retirement plan consultant in multiple areas such as guiding plan design, recommending and monitoring plan investments, and helping the employer fulfill fiduciary, regulatory and compliance requirements. With the introduction of advisor managed accounts for 401(k) plans, consultants in an investment manager role can provide customized investment portfolios to participants in the plans they serve.
“That’s an important point,” Anderson adds. “With things like target date funds, the advisor has been able to customize certain aspects at the plan level, but now they can do it at the participant level with a fully integrated record-keeper.”
Morningstar was chosen because of Schwab’s already “deep affiliation’ with the Chicago-based firm, and due to the fact that so many advisors are already comfortable using their software.
“Their infrastructure is such that RIAs can really focus on the investment side of what they do, rather than the technology side.”
Schwab Retirement Plan Services has made managed account services available from two independent investment advisors through its retirement plan platform as the intended qualified default investment alternative (QDIA). With this QDIA approach, all plan participants are enrolled into the managed account and can choose to stay in the advice program or manage their investments on their own.
“We know people need help saving for retirement. We’ve seen that when advice is built into a 401(k) plan so that participants start off with it and are free to opt out, 87 percent remained in the advice program. That can significantly impact retirement outcomes,” Anderson added.
The success of this QDIA approach and discussions with employers and consultants who advise on plan investments led Schwab Retirement Plan Services and Morningstar to develop and integrate the necessary technology and participant support services for this new capability.
“Now employers seeking managed accounts customized for their plan have a new choice. We anticipate the first 401(k) plan will implement this approach early next year,” Anderson said.