Managed accounts grab the spotlight

Defined contribution plan service providers and consultants are gearing up to launch a wave of new or tweaked managed account offerings following the Labor Department's proposed regulations allowing the accounts to be default options.

• Wilshire Associates is planning to partner with 401(k) plan providers and market directly to plan sponsors;

• SunGard Employee Benefit Systems acquired ProNvest Inc. and will offer managed accounts for the first time;

cWachovia Retirement Services recently altered its service to allow managed accounts as a default option; and

• Financial Engines is working with its provider partners in tweaking their options to allow for a default option.

The Pension Protection Act of 2006, signed Aug. 17 by President Bush, cleared the way for automatic enrollment of participants, and the Sept. 26 DOL proposal clarified what are appropriate default options for automatic enrollment programs.

Managed accounts are personalized investment portfolios put together from among the plan's options for participants who want a professional money manager to manage their accounts.

Wilshire Associates Inc., Santa Monica, Calif., is preparing to launch its first managed account products, one for DC providers that will work with Wilshire and one that Wilshire will market directly to plan executives.

Charley Stunkard, managing director, said the program will be available in the next couple of months; Wilshire has yet to sign on a plan provider.

The program, called RetirePath, is structured to allow Wilshire to select an appropriate lineup of investment options within the plan to create the managed account, said Matt Radgowski, vice president. "We do have an extensive manager research staff that will be employed in the service," he noted.

Mr. Stunkard declined to discuss asset goals for the new products or the fees associated with RetirePath.

SunGard Employee Benefit Systems LLC, Wayne, Pa., is making its first foray into managed accounts with its Oct. 4 acquisition of ProNvest, Chattanooga, Tenn.

Alan Gross, spokesman for SunGard, said managed accounts are becoming a vital part of the defined contribution industry and ProNvest is an important acquisition for SunGard's growth.

Jay Jumper, president of ProNvest, said, "We are currently remarketing our existing product with the idea you can default into it. We knew the Pension Protection Act would eventually pass, and that managed accounts would be an accepted default, so we started altering the service to have an opt-out feature about nine months ago."

"Plan sponsors are now notifying new participants that they are going to be put in a managed account and will have 30 to 60 days to opt out," said Mr. Jumper.

"People have been waiting for the last two years for this clarification and there is no more reason to wait. We view it as a huge boon to our industry. Now more clients are looking for solutions to make the automatic enrollment opportunity better," he said.

Firms already in the managed-accounts business also are altering their offerings.

Wachovia Retirement Services Inc., Charlotte, N.C., altered its AdviceTrack service this summer to make it available as a default option in 401(k) plans. The company had to change its technology to allow for defaults into managed accounts.

"Since the Pension Protection Act passed, I've been explaining what the PPA means to our clients and how AdviceTrack fits under the new law," said Keith Sykes, defined contribution product manager for Wachovia. "Since July, we rolled out AdviceTrack as a default option. We have had 23 new clients use it since July 1."

AdviceTrack has 509 sponsor clients and $300 million in assets.

Since the PPA was signed, Wachovia also began mapping new participants of existing clients into AdviceTrack. "At the event of conversion, we could put all the participants' assets into AdviceTrack. Participants have a 10-day window to opt out," he said.

Jeff Maggioncalda, president and chief executive officer of Financial Engines Inc., Palo Alto, Calif., said that in the last few weeks the firm has worked with providers that license the program to tweak the program, but declined to discuss specifics about clients or how the program was changed.

Financial Engines has $6 billion in managed account assets. Its managed account services clients include Vanguard Group Inc., Hewitt Associates LLC, CitiStreet LLC, JPMorgan Retirement Plan Services Inc., T. Rowe Price Retirement Plan Services Inc. and ACS HR Solutions.

When asked to comment about rumors that Fidelity Investments, Boston, is about to sign on with Financial Engines, Mr. Maggioncalda said, "I cannot confirm or deny at this point."

Steve Austin, spokesman for Fidelity, did not return repeated calls by press time.

Two other large managed account providers said they aren't making any changes.

ProManage LLC, Chicago, did not have to alter its service to accommodate defaults, said Luke Collins, executive vice president and director of business development. "Our business model was predicated to default," he said. Virtually all of our clients use us as a default (option)."

Kevin Crain, director of integrated product management for Merrill Lynch Retirement Group, Pennington, N.J., said 35% of the firm's clients are using Merrill's managed account service as a default.

"That was before the PPA. Over the next few years we expect it to grow to $7 (billion) or $8 billion in assets with 200,000 participants," Mr. Crain said. Merrill now has $2 billion in managed account assets with 54,000 participants using the service.

And while Wilshire Associates is jumping on the managed accounts bandwagon, others are hesitant to enter the business.

Matt Smith, managing director of retirement services at Russell Investment Group, Tacoma, Wash., said that while managed account assets likely will boom, Russell is focused on its asset-allocation strategies and isn't looking to enter the managed accounts business in the near future.

"I believe target-date funds are an appropriate default vehicle (and one included in the Labor Department's proposal). As for managed accounts, I don't fully understand how you would default into that option. For a participant that is not interacting, they would have to make a choice (with managed accounts). You would still have this issue if they don't go to the website (to provide relevant information)," said Mr. Smith.

Scarlett Ungurean, principal for Mercer Investment Consulting Inc., Chicago, said, "I think managed accounts will be more interesting (now), but target-date funds and balanced options will be growing as well. Our clients are asking about managed accounts and advice, but I don't know if they will automatically default because they are paying closer attention to costs. I think there will be more uptake of target-year funds vs. managed accounts."

As for Mercer offering a managed account service, Ms. Ungurean said, "I don't think so. Managed accounts typically go along with advice, and that's not a business I see us in."