In a recent article in The Wall Street Journal, reporter Anne Tergesen raises valid points regarding the cost and effectiveness of managed accounts in some 401(k) plans. As a leading technology innovator within the retirement plan sector, we share the concerns presented in the article.
Notably, the issues of poor-performing technology and the lack of participant engagement in managed accounts are of particular interest to us. Managed accounts historically have faced these challenges and more. We believe personalization is the inevitable future of retirement planning, and that technology is rapidly taking it from possible to practical. Retirement plan savers are demanding tailored investment solutions that align with their unique financial situations and retirement aspirations.
“We believe personalization is the inevitable future of retirement planning, and that technology is rapidly taking it from possible to practical.”
Kassandra Hendrix
While it is true, historically, that higher levels of personalization associated with managed accounts carried a higher price than traditional target-date funds, that is no longer the case. As with much of life in the digital age, there have been significant advancements in technology that have revolutionized portfolio management, making it more seamless and cost-effective. In light of the challenges detailed above, we developed a solution called “Automated Personalized Portfolios” (APP) that specifically addresses those concerns.
Today (not tomorrow!) it is possible with the patent pending technology behind our APP platform to incorporate essential inputs such as age, account balance, salary, marital status, gender, matching amounts, and savings rate, and then dive deeper to gather additional details such as retirement age, retirement location, outside accounts, and individual need for guaranteed income.
This level of personalization ensures that each investor receives a portfolio that suits their unique needs and goals. Not to mention, our Automated Personalized Portfolios (APP) is available at a tenth of the cost of the solutions mentioned in the article. This degree of cost reduction is possible primarily due to the automation of portfolio management.
While cost remains a significant concern, the real question is value—and the willingness of the industry to embrace newer, lower cost, and more effective technology solutions, rather than defaulting to inferior solutions cloaked by the comfort of a Big Brand umbrella name.
Let’s face it—the managed account landscape has evolved, and there are reasons aplenty to find both the cost and results of many of the current applications disappointing. As technology continues to advance and costs retreat, personalization is the essential service element—and one that today’s investors both desire and deserve. For those of us with patience and better solutions, success is a long fight but a worthwhile endeavor.
SEE ALSO:
• 401(k) Managed Account Users Out-Saving TDF Participants
• ETFs, Managed Accounts Grew Rapidly in 2023
• Why the Retirement Industry Needs to Embrace Change, Get Better at Working Together: LeafHouse Event
Kassandra Hendrix is EVP, Corporate Strategy, at Austin, Texas-based independent investment adviser LeafHouse, which specializes in creating investment solutions for retirement plans including investment fiduciary services, manufacturing investment vehicles, automated personalized portfolio programs, IRA solutions, and enterprise technology solutions.