Truly Managed Accounts are Not QDIAs: Opinion

When is a managed account not managed? When it’s a QDIA,” says Ron Surz
Managed Account
Image credit: © Yurii Kibalnik | Dreamstime.com

According to Investopedia, an account is managed when:

Armed with discretionary authority over the account, the dedicated manager actively makes investment decisions pertinent to the individual, considering the client’s needs and goals, risk tolerance, and asset size.

An investment manager does not know the client’s needs and goals, risk tolerance, and asset size when a participant defaults into a QDIA because that participant does not engage.

The Pension Protection act of 2006 declared three Qualified Default Investment Alternatives (QDIAs), one of which is a “Managed Account (MA).” But MAs come in two flavors—unmanaged and managed. This has caused a lot of confusion because both are called “managed accounts.”

The MA is the second most popular QDIA, falling far behind target date funds. The debate between the two rages on , and has led to the recent introduction of “Personalized Target Date Accounts (PTDAs)” that combine target date glidepaths with the active involvement of participants. PTDAs as QDIAs is a related separate discussion. The debate and the integration take the view that the MA is actually managed. This should be a qualifier rather than an assumption.

Two types of managed’ accounts

“You cannot truly manage assets for people who do not want to engage.”

The unmanaged flavor is in fact a QDIA because it is what defaulted participants get when they do not engage. The unmanaged version of a “managed” account is typically a target date glidepath that usually costs more than a target date fund. You cannot truly manage assets for people who do not want to engage.

The truly managed flavor is not a QDIA because participants actually engage with a live financial advisor—they do not default. Because participants who engage have not defaulted, they do not qualify for the “D” in QDIA. Their use of MAs is not a QDIA.

The mistake in the Pension Protection Act of 2006

I believe that the drafters of the PPA had the truly managed version in mind when they declared MAs to be QDIAs, but they didn’t realize that a participant who collaborates with an advisor will in fact make self-direct investments because that is THE reason to work with an advisor. The drafter’s intent is undermined by the reality.

The drafters confused the face-to-face individualized MA with the sponsor-selected MA for all. The individualized MA is not a QDIA. The MA for all is a QDIA but it is not “managed.”

Sometimes the sponsor does choose an advisor for a self-directed participant. Usually, this participant is an executive of the firm. In other words, non-defaulted executives get professional guidance, where—again—this is NOT a QDIA.

Conclusion

Unmanaged “managed” account providers talk about their product as if it were truly managed. It’s not. It can’t be. Don’t fall for this subterfuge.

SEE ALSO:

• Managed Accounts Get More Personal in PGIM RetireWell/iJoin Deal

• Key DC Trends Shaping the Retirement Industry in 2025

Ron Surz, contributing author for 401(k) Specialist
Website |  + posts

Ron Surz is CEO of Target Date Solutions (TDS), co-host of the Baby Boomer Investing Show (BBIS), and author of the book "Baby Boomer Investing in the Perilous Decade of the 2020s." TDS licenses target-date fund usage of Ron’s patented Safe Landing Glide Path® (SLGP) that actually protects beneficiaries as they approach retirement. Individual investors can follow the SLGP at Age Sage, an educational interactive website. The BBIS educates baby boomers on the risks and rewards in contemporary investing, and Ron’s book is a tour of these shows. He can be reached at Ron@TargetDateSolutions.com.

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