20 Years in, EFE Has Grown to $210B in Managed Account Assets

Edelman Financial Engines has seen managed account assets grow to $210 billion by the end of 2023 from $88.2 billion in 2013, according to a Monday announcement celebrating their offering the investment advice solution to defined contribution plan sponsors and participants for 20 years.

In the report, EFE highlighted its 45% market penetration for defined contribution managed account assets through the fourth quarter of 2023, according to data from consultancy Cerulli Associates. The Santa Clara, California-based EFE also noted that it has been the largest provider of managed accounts to defined contribution plans since 2008, partnering with large plan sponsors and recordkeepers to offer its plan advice and management to 1.2 million workplace plan participants.

Financial Engines started offering managed accounts to 401(k) participants in 2004, according to the announcement. The firm was purchased in 2018 by private equity firm Hellman & Friedman, which had a majority stake in Edelman Financial Services; the company rebranded later that year to become Edelman Financial Engines.

Twenty years from inception, the overall DC asset base for managed accounts at about $434.57 billion, having grown from about $170 billion 10 years ago, according to Cerulli. Other providers include Morningstar Inc., Fidelity Investments and Stadion Money Management, which is owned by Smart.

“Twenty years ago, as the 401(k) continued to replace traditional pension plans as the primary employer-sponsored retirement program, we saw an opportunity to step in and offer sophisticated financial advice to employees who typically didn’t have access to independent and personalized investment management,” said Kelly O’Donnell, president of employer services at Edelman Financial Engines, in a statement. “It’s incredible to see how the industry has progressed and innovated since then.”

Improved Savings

EFE’s data show that, over the past 10 years, savings rates of managed account users average higher than that of non-users; the firm notes the personalized management and advice of managed accounts as leading to the better outcomes.

According to EFE client data, users contribute an average of 9.1% of income to their account, as compared to 7.8% for non-users and 7.1% for individuals primarily invested in a single target-date fund.

Managed account members also have a greater chance of keeping their assets in plan than rolling them out. According to data from recordkeeper Alight Solutions, which offers EFE-managed accounts, plan participants using managed accounts were 3.1 times more likely than non-users to keep their assets in-plan after leaving a company. Meanwhile, users were 3.4 times less likely than non-users to take a cash distribution when leaving a company.

EFE noted that it has performed almost 150 million portfolio reviews since it started offering managed accounts.

Availability vs. Uptake

Managed accounts are available to many participants through their employers. In a survey of 2,128 plan sponsors, 37.7% said they are offering managed accounts to their participants, according to PLANSPONSOR’s 2024 Defined Contribution Benchmarking Report. That compares with 33.2% of plan sponsors that said they offered them in 2018. Meanwhile, recordkeepers as recently as this week have been bringing to market hybrid, or dynamic, qualified default investment alternatives that automatically transition a participant from a TDF into a managed account when they are further along in their career and closer to retirement age.

Total assets in DC plans were $7.98 trillion at the end of 2022, according to the board of governors of the Federal Reserve System, and the top 10 target-date funds in DC plans accounted for $1.74 trillion in assets at the end of 2023, according to Simfund, which, like PLANADVISER, is owned by ISS STOXX. Meanwhile, managed account assets have grown among the top-nine DC sponsors to $434.57 billion through 2023 after being at $316.66 billion in Q2 2019, according to Cerulli, who compares to that year due to volatile markets in 2021 and 2022 influencing assets.

Some stumbling blocks to uptake, according to both advisers and industry reports, are the fees associated with managed accounts and the threat of litigation from putting participants in relatively higher-fee options, as compared with TDFs. Analysis from an-oft cited  2020 Aon white paper found that the asset allocation from a managed account does not outperform a TDF when taking fees into account.

Proponents of managed accounts have noted that the personalized service and customization will ultimately make up for associated fees. Data and analytics firm Fiduciary Decisions last year launched a new benchmarking system for managed accounts to help plan fiduciaries compare managed account offerings against peers, as well as TDF offerings. The firm noted at the time that the service will help advisers and plan sponsors address fiduciary concerns about offering a managed account rather than a lower-cost option. 

EFE noted in its report that employer and employee demand for more financial advice and products for the workforce have grown over the years, including access to retirement income offerings that can be provided through managed accounts.

The firm has seen an uptick in managed account users providing more personal data and preferences to improve customization and results. Those inputs include retirement age, risk preferences and outside investment accounts.

“We are proud of the positive impact that we have made on employees over the last two decades,” O’Donnell said in her statement. “However, like many other aspects of the overall defined contribution system, we know there is much more to do to help even more employees improve their retirement and financial well-being. Looking ahead to the next 20 years, we expect continued change as advancements and new technologies such as artificial intelligence take hold.”