Managed Account Demand on the Rise

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.

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].

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.  

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