Managed Account Demand on the Rise

“Do it for me” investors opt for professional management.

Some common questions employers frequently ask are, “How do I set my employees on the right path to retirement?” and “What workplace resources can I provide them so that they’re retirement ready?”

These seemingly simple questions quickly turn complex when you take into account employees’ many behaviors and investing styles—including some workers’ preference to manage their own money while others want a professional to handle the investing.

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For the employees who are “do it yourselfers” (DIY), they manage their retirement savings on their own and call the shots. On the flip side, “do it for me” (DIFM) investors allow a financial services professional to manage their savings for them. We define this type of management to mean being 100% invested in a target-date fund or a workplace managed account, where a professional provides asset management so that each employee is properly allocated and on the right path.

The secret that this DIFM group harnesses is that they’re allocated in a way that considers their personal situation. In fact, looking at seven-year annualized returns based on return information for Fidelity Investments recordkept plans that offered managed accounts on a continuous basis from 1/1/2007 to 12/31/2013, the DIFM group who took advantage of a workplace managed account experienced less turbulence as a result of the risk management that comes with a professional overseeing the investments because they made sure they were allocated appropriately and according to the investor’s risk tolerance.

Managed accounts also helped those who were investing too conservatively by introducing funds that would help the portfolio grow enough so that the investor could reach his retirement goals. As a result of this tailored management, managed account investors historically have tended to experience a much tighter range of returns than those managing investments on their own. In an analysis of the risk distribution over a five-year year period for Fidelity recordkept plans as of 12/31/14, DIY investors experienced a range of risk two times broader than those in a managed account[i].



[i] The annualized returns presented exclude (1) workplace savings plans designated for employees of Fidelity Investments and its affiliates, (2) participants whose accounts included greater than 20% exposure to company stock at any point during the period, and (3) Extreme return values.

Employer demand for workplace managed accounts is steadily on the rise. This is due in part to the fact that the benefits of a managed account aren’t just for employees. When an ERISA 3(38) provider is managing the employee’s account, it assumes the employer’s fiduciary responsibility for those investments while an ERISA 3(21) adviser shares the responsibility.

As your company considers the benefits of offering DIFM employees a workplace managed account, here are some things to consider:

  • Understand the skill, will and time of your employees: Whether they’re “do it yourself” investors or DIFMs, understanding your employees’ willingness and aptitude for managing money will help determine the type of guidance, tools and products that will benefit them most.
  • Helping your employees manage risk is half the battle: By helping workers understand the risks associated with investing on their own and offering investment options that help meet their needs, employers can play a key role in improving retirement savings outcomes.
  • Provide needed solutions: Some employees need help managing their investments, so consider the benefits that a managed account may provide them in reaching their retirement goals.

Since an employee’s defined contribution plan may be the largest asset they ever have—and the key to reaching their retirement goals—helping them effectively manage their exposure to risk will help them reach their fullest potential.

Sangeeta Moorjani, senior vice president of professional services for Fidelity Investments    

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. This article is contributed content and not written by a PLANSPONSOR or Asset International employee. Any opinions of the authors do not necessarily reflect the stance of Asset International or its affiliates.  

Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI 02917     

Fidelity Investments Institutional Services Company, Inc. 500 Salem Street, Smithfield, RI 02917    

© 2015 FMR LLC. All rights reserved. Posted courtesy of Fidelity Investments.          721629.1.0

Sponsors, Participants Warming Up to Guaranteed Income Options

A study found an increase in the number of retirement plan participants electing an in-plan guaranteed income option.

LIMRA Secure Retirement Institute calculated that 3 million participants have access to an in-plan income guarantee through their employee-sponsored retirement plan in 2014, a 32% increase from 2013.   

In addition, there was a 24% rise in the number of participants electing an in-plan guarantee, to reach 71,300 in 2014. In 2014, the number of retirement plans offering in-plan guarantees grew by 41%, totaling 33,500, and more than 132 billion in assets are in plans that offer an in-plan guarantee, up 27% compared with 2013.

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The study found small plans (with less than $10 million in assets) are most likely to offer in-plan guarantees. In 2014, 31,000 small plans, 1,900 mid-size plans ($10 to 199 million in assets), and 80 large/mega plans ($200 million and more) offered in-plan guarantees to their workers. Smaller plans are more likely to offer in-plan income guarantees because the early in-plan guarantee products were developed by life insurers, which tend to be in the small and mid-size markets, LIMRA says. 

Total assets covered by an in-plan guarantee reached $3.6 billion, a 26% increase over last year. The average amount covered per participant is $50,000.

Prior LIMRA Secure Retirement Institute research reveals that consumers are most concerned about having enough money to last throughout their retirement. Eight out of 10 U.S. workers believe employers should provide ways to convert savings into retirement income. Younger workers are particularly interested in this option, with 90% of workers ages 18 to 34 saying they somewhat or strongly agree that employers should provide avenues to convert savings into income at retirement.

A guaranteed lifetime withdrawal benefit (GLWB) and deferred income annuities (DIA) are the two types of in-plan guarantees currently sold in retirement plans, according to LIMRA. These products allow participants in retirement plans to protect some of their savings to provide future retirement income while they are still working and contributing to their plans.

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