401(k) managed account investors are much more confident in their retirement investment strategy than non-advice users, according to new research released May 16 from Cerulli Associates.
Only 16% of non-advice users reported feeling very confident in their retirement investment strategy. By comparison, 47% of DC managed account program users reported feeling very confident in their strategy.
Cerulli’s latest white paper, 401(k) Managed Accounts: A Misunderstood Value Proposition, developed with support from Edelman Financial Engines, found only 16% of non-advice users reported feeling very confident in their retirement investment strategy. By comparison, three times that—or 47% of DC managed account program users—reported feeling very confident in their strategy. The research suggests that there is unmet demand for DC managed accounts and provides plan sponsors clear steps to improve awareness and engagement for their offerings.
This is compounded by the fact that these employees are largely uneducated about the benefits available to them through their employer-sponsored retirement plan. When asked to select the correct definition of “target-date funds” and “managed accounts,” approximately two-thirds of participants (67% and 71%, respectively) were either “not sure” or selected an incorrect definition.
Data from a new survey of 823 active 401(k) plan participants suggests that there is unmet demand for the type of help offered through DC managed account solutions. Despite not fully understanding their options, most investors acknowledge they could benefit from professional advice, with 70% of plan participants agreeing that a financial professional could do a better job of managing their retirement assets. Approximately 50% of survey participants identified the ability to speak with a human advisor as one of the top-two most valuable elements of financial advice solutions. “Participants really value the human-to-human element of some managed account solutions available in the marketplace,” said Shawn O’Brien, director.
DC managed accounts represent a potential solution for 401(k) plan participants who exhibit confusion, low confidence, and misdirection in their attempts to secure a comfortable retirement. Particularly for those seeking access to human advice, this solution can offer participants peace of mind that they can’t get from other solutions, such as target-date funds. As one current managed account user shared, “The biggest benefit is that you’re leaving your retirement in the hands of an expert that knows how to safeguard your money so that you’re not worrying…‘Am I going to have enough for retirement by the time I hit retirement age?’”
Still underutilized
Despite the expressed benefits of managed accounts by today’s users and the expressed needs of participants more broadly, the solution remains underutilized. To create awareness of DC managed accounts and enable underserved plan participants to make a more informed decision about the best solutions for their retirement savings and income plans, Cerulli encourages the industry to frame managed account programs as not just an “investment product,” but as an “employee benefit” that can improve participants’ financial and emotional well-being.
Additionally, there needs to be a greater focus on translating industry jargon, including commonly used terms such as “personalization,” into simple, everyday language when describing DC managed accounts. “Having to distinguish between the different service providers associated with their 401(k) plans and navigate unfamiliar industry jargon used to describe the products and services they offer can be confusing for even the most informed participants,” O’Brien said.
Concurrently, the industry should strive to craft new evaluation criteria and methodologies for quantifying the non-investment benefits of DC managed account programs in order to better inform participants of the full value of the solution.
Lastly, plan sponsors should consider using automatic re-enrollment plan design features as an antidote for any disengaged or at-risk participants, such as those with imprudent asset allocations or insufficient projected retirement income replacement ratios, who are most likely to benefit from a managed account program.
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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.