Managed Accounts for Personalized Investments
Managed accounts in retirement plans present a promising solution for offering customized investment strategies, addressing the unique needs of diverse participants. However, despite these advantages, some plan sponsors hesitate to offer them due to concerns over high fees, litigation risks, and low engagement. Understanding both the opportunities and challenges associated with managed accounts can help sponsors make informed decisions.
What Are Managed Accounts?
Managed accounts offer participants personalized investment strategies within defined contribution (DC) plans, adapting to individual goals, risk tolerance, and retirement timelines. Unlike generic investment options, managed accounts are tailored to align with each participant’s financial profile, providing a more customized approach to retirement planning.
These accounts are often more affordable within DC plans than through external financial planning services. They allow participants access to lower-cost institutional funds, which can be advantageous, especially for individuals nearing retirement who may benefit from targeted investment advice.
Why Sponsors Are Reluctant
Despite the advantages, managed accounts face several barriers to broader adoption. High fees and complex management requirements remain top concerns, as sponsors worry these factors could detract from participants' returns. Litigation risks are also a significant factor, as sponsors fear potential lawsuits related to investment performance or fee structures.
Low participant engagement is another challenge, as managed accounts require participants to share detailed financial information to achieve optimal personalization. For some, this requirement raises cybersecurity concerns, adding another layer of complexity.
Maximizing the Value of Managed Accounts
To make the most of managed accounts, sponsors need to balance their potential benefits against these challenges. Evaluating both qualitative and quantitative factors, such as participant satisfaction, retirement readiness, and account performance, is crucial. Assessing providers for conflicts of interest is also essential to ensure that managed accounts are designed with participants’ best interests in mind.
Additionally, plan sponsors can improve outcomes by addressing cybersecurity concerns and fostering a culture of financial engagement to encourage participants to take advantage of managed accounts.
Managed accounts offer a powerful way to provide personalized investment options in retirement plans, but successful implementation requires careful consideration of associated risks and costs. By proactively addressing these challenges, plan sponsors can enhance participant outcomes and provide a tailored retirement planning experience that supports long-term financial well-being.
