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PARTICIPANTS SPECIAL ISSUE | INVESTMENTS
Jersey. Average fees for a typical managed
account-the overlay on top of the investment
management fees-are now about
0.35% to 0.40%, down from more than
0.60% several years ago, he says.
More Targeted Advice
Rather than just providing a portfolio
based on more personalized information
than what a target-date fund has, managed
accounts now offer several levels of advice
to meet a range of participant needs.
" According to our annual Retirement
Saving and Spending survey, 71% of
participants want help or advice on saving
for retirement through their current workplace, "
says Lee Stevens, head of institutional
sales at T. Rowe Price in Baltimore.
" The personalization of advice can be
meaningful, especially for participants
with a more complex financial situation. "
The means to the advice can also vary
depending on how much the participant
wants to engage with the plan. Vanguard,
for example, offers several levels of advice.
" Our managed account fee structure
varies based on the service, " says
Czonstka. Digital Advisor, with an advisory
fee of 0.15%, is designed for investors
seeking advice through an all-digital
platform. Personal Adviser Services, with
an advisory fee of 0.30%, complements a
high-tech digital experience with advice
from a Vanguard personal adviser.
The Vanguard Managed Account
Program, powered by Edelman Financial
Engines, offers a personalized retirement
plan with an investment strategy, and
ongoing professional management with
a retirement income feature. VMAP fees
are based on account assets managed.
Schwab also offers several levels of
advice in its managed accounts. " If you
want to use a digital tool and get investment
and savings recommendations on
your own, you can through the advice
managed account program, digitally, " says
Voris. " You can also have a conversation
with a financial coach; that can go in any
direction [where] the need arises.
" Most of the time, the plan sponsor
chooses the full suite of services for
managed accounts, and it's up to the individual
participant to decide how he'd like
to engage, " Voris continues.
Participants start by providing information
through a digital tool or by talking
with a financial coach, who can help with
the advice process and deliver third-party
recommendations for their savings rate
and investment portfolio. The participant
then decides how to implement
the guidance-choosing either a pointin-time
solution or a managed account,
which provides ongoing management
by the third-party fiduciary. " The solutions
are presented side by side, so [the
person] can see the dollar amounts, " says
Voris. " We're putting that decision in the
participant's hands. "
A newer development is adviser
managed accounts. " It's very similar to
what you'd have with traditional managed
accounts, except the plan adviser serves
the role in the portfolio construction and
engages with the participant, " Voris says.
The adviser often knows the plan
sponsor and its culture and how to engage
at the participant level, he notes. " This is
new, but, if you ask me, is the No. 1 trend; I
think a big portion of the managed account
growth will be in the adviser managed
account space. "
Greater Advice for Retirees
Managed accounts are also expanding to
provide more advice to participants after
they retire.
" Retirement income is a hot topic, and
advice in managed accounts is a great place
to help solve for income and help people
achieve those goals from a decumulation
and retirement income perspective, " Voris
says. " The decumulation and withdrawal
strategy is a very personal conversation.
When [individuals] reach that point in their
career, they often seek out advice. "
To keep participants engaged with
the plan even after they retire, Blanchett
says, sponsors can provide an extra level of
advice; the aim will be to help the retirees
manage what they have saved. " It's not
only how risky the portfolio should be, it's
also how much you should spend, what
accounts to draw down first, and guidance
for assets that aren't in the managed
account, " he says. -Kimberly Lankford
A Dynamic Default
IN THE PAST, some plans would offer either target-date funds or managed accounts. Now,
more plans offer both options, to meet changing needs through a participant's life stages.
" We believe that target-date funds and managed accounts exist in harmony, "
says Amber Czonstka of Vanguard. " Target-date funds are an elegant solution when
[participants are] not engaging with us and sharing information about themselves. As
participants are willing to share more about their financial picture-their holdings
outside of the financial plan, the struggles they deal with-then we can tailor the
portfolio and glide path to the person's needs. "
Some plans are starting to offer managed accounts as the default investment for
older participants. " There's growing awareness of dynamic qualified default investment
alternatives, which merge two QDIAs: a target-retirement date, or balanced investment
option and a managed account service, " says Lee Stevens of T. Rowe Price. Rather
than having a TDF as the default for all ages, as many plans do now, the default may
be the TDF for younger participants, but become the managed account for participants
aged 50 or older.
" Older plan participants who have higher account balances and more outside holdings
tend to benefit most from managed accounts, " she says. " Younger participants
with less complex financial situations are well-served by target-date funds. " -KL
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