Managed Accounts the Next DC Investment Trend?

Mega plan sponsors are pushing the envelope yet again, going beyond target-date funds by offering more personalization to their plan participants through managed account vehicles, according to the DC Investment Manager Brandscape, a Cogent Reports study by Market Strategies International.

Cogent Reports notes that actions by mega plans often serve as indicators of new industry trends. The proportion of mega plans offering these customized allocation solutions as their 401(k) plan default investment option has increased from 5% in 2014 to 18% in 2015.

According to the study, mega plans, defined as those managing $500 million or more in assets, report a strong interest in offering exchange-traded funds (ETFs) within managed accounts to their plan participants as a means of offering a cost-effective solution. Furthermore, these sponsors are significantly more likely to cite retirement income product offerings as a key reason for selecting a managed account provider.

“While target-date funds continue to serve as the most widely preferred default investment option among most plans, this increased usage of managed accounts among Mega plans signals a growing desire in the industry to offer a more personalized solution for plan participants,” says Linda York, vice president of Cogent Reports.

The report identifies the top investment managers that plan sponsors would likely consider for managed accounts and target-date funds as well as other investment products. Among the larger plan segments, eight firms rank in the top ten for both managed accounts and target-date funds.

Study results are based upon 600 web-based surveys among a statistically representative sampling of investment decision-makers within 401(k) plan sponsors. Information about how to purchase the report is here.