Managed accounts have often failed to achieve their objectives in large defined contribution plans due to unfavorable comparisons to target-date funds, inadequate efforts by record keepers and poor cooperation among participants who don't provide enough information to make the offerings more effective.
That's the verdict of DC consultants, whose clients have $5.7 trillion in DC assets and who responded to the latest annual survey by Pacific Investment Management Co. LLC, Newport Beach, Calif. The survey of 26 consulting firms covering 2021 was published May 23. It was conducted in January and February, and each respondent had DC assets under advisement of $10 billion or more. Twenty-seven percent of consultants estimated that clients had median DC assets of $501 million or more; 50% estimated their clients had median DC assets of $101 million to $500 million.
When asked whether managed accounts produce more value "than other similar approaches such as target-date funds," a combined 42% said they disagreed or somewhat disagreed, while only 23% agreed somewhat. The rest were neutral.
When asked whether managed accounts are superior to target-date funds in generating income in retirement, 27% said they disagreed or disagreed somewhat vs. 15% who somewhat disagreed. Fifty-eight percent were neutral.
"There's clearly an indication there is a need for something in between managed accounts and target-date funds," said Rene Martel, Newport Beach-based managing director and head of retirement, in an interview.
Mr. Martel's prescription for "something in between" is a greater use of record-keeper data — rather than just rely on participants to provide detailed information — so that managed accounts can achieve their goals of providing customized retirement accounts. The data, he added, are available.
However, the PIMCO survey shows consultants believe record keepers don't have enough appropriate data.
Fifty-seven percent of respondents disagreed or disagreed somewhat with the statement that record keepers have "sufficient personal data to allow for personalized portfolios without the need for participant engagement," the survey said. Only 23% said they agreed somewhat, while 19% had no opinion.
Record keepers must pick up the slack because the survey shows minimal engagement from participants. Sixty-one percent of consultants said they disagreed or disagreed somewhat with the survey statement that participants "typically add and keep current personal data in managed accounts." Only 8% agreed somewhat, and 31% had no opinion.
"Participants have to be specifically engaged," Mr. Martel said. "Adoption has been limited."