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communicate performance and benchmarking
information to participants. The
GAO also chided the Department of Labor
(DOL) for inadequate guidance to sponsors
on how to choose a provider.
Granted, managed accounts are a
complicated product to evaluate. Costs
are hard to read, says James Veneruso, a
senior vice president in Callan's Summit,
New Jersey, office. Some recordkeepers
make no explicit charges, while others will
charge a fee that is fixed, or per capita, for
adding the capability. " And then, for the
individual participant, " he adds, " there's
a fee scaled to the assets in the account,
which can be as high as 60 basis points
[bps] on a small balance to 10 basis points
on large accounts. "
Benchmarking results is a challenge,
as well, as each participant has a different
risk profile that will yield varying returns.
" Beyond fees, what standard can you hold
[the accounts] to? " says Veneruso.
At Fidelity Investments in Boston,
Chad Elliott, senior vice president of workplace
managed accounts, explains, " We
try to quantify around a lot of different
metrics-not just investment performance.
We encourage sponsors to look
at risk-adjusted returns on the managed
accounts and compare them with the
results of the plan's comparable target-date
fund and those of the do-it-yourselfers. "
Essential to the process is employee
engagement, which workers demonstrate
by providing personal information on their
net worth, life events, etc., to the managed
account provider. " In the last three years,
we have focused on increasing the level
of personalization in our program, " notes
Elliott. " We are investing in proactive
communication, and the personalized
experience on our website, so our representatives
can engage the participant in an
ongoing conversation. "
At Financial Engines, which oversees
managed accounts for 1 million participants
in 721 corporate plans, Boston-based
vice president Rennie Worsfold notes that
personalization is so important that his
firm measures portfolio performance
separately for each individual who has
personalized his account, versus for the
group who have not.
O'Meara observes that, without
enough information to customize the portfolio,
" participants can't extract value from
it, and a managed account becomes just a
very expensive target-date fund. That does
no one in the industry any good. "
In addition to encouraging employee
engagement, firms have begun working
to increase the utility of their managed
account programs through product innovation.
Empower Retirement, a unit of
Great-West Life & Annuity Insurance
Co., and Fidelity Investments have both
rolled out a QDIA strategy that shifts
participants from a target-date fund to a
managed account. The shift is triggered
by crossing one or more personal thresholds
determined by the plan sponsor, such
as attainment of a certain age, job role,
account balance, or amount of outside
assets or holdings of company stock.
Where managed accounts might
significantly expand in number would be
as a solution to the puzzle of transforming
a block of retirement assets into a stream
of retirement income. In one scenario,
retirees would keep their assets in their
former company's plan, where a managed
account could handle investment and
distribution. Many sponsors are eager to
keep participants in place after retirement,
either out of paternalism or a desire to
maintain their plans' buying power.
Staying in the plan during retirement
might also promote public policy.
" The Department of Labor is espousing
the position that individuals are better
off staying in an employer-sponsored
retirement savings plan than going into
the IRA [individual retirement account]
market, " says Sclafani. " They're less
likely to encounter what the DOL would
characterize as predatory pricing and
conflicts of interest. "
She stresses, however, that the DC
industry will have to amend its product
line with retirement income vehicles-
reasonably priced systematic withdrawal
" Offering
managed
accounts
is largely a
philosophical
choice. "
funds and annuities-which so far have
been slow in their development.
" Target-date funds tend to be blunt
instruments, " says Veneruso, " and so
much of the industry's messaging today
is default and automatic, and says, 'We'll
do it all for you.' But when someone gets
into the red zone near retirement, where
the decisions are the most complex,
we're telling them, 'Now you do it all.'
That's where managed accounts can
demonstrate their value and come up
with a plan to meet each person's unique
circumstances. " -John Keefe
KEY POINTS
* Managed account services
provide analysis and
customization on an ongoing
basis according to a participant's
personal financial situation.
* Essential to managed
account success is employee
engagement, demonstrated as
providing personal information
on net worth and life events to
the managed account provider.
* Recordkeepers have begun
rolling out a QDIA strategy
that shifts participants from a
target-date fund to a managed
account after reaching a certain
threshold, determined by the
plan sponsor, as they edge
toward retirement and their
situations diverge.
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