The number of employers offering managed accounts in their workplace retirement savings plans has shrunk, according to NEPC’s "Defined Contribution Plan Trends and Fee Survey" released March 4.
In 2023, less than half (46%) offered managed accounts and the percentage is expected to drop below 40% by the end of this year.
The slowdown in adoption of managed accounts by plan sponsors is due in part to a realization that the products benefit the providers of managed accounts more than they do plan participants, NEPC said in a news release.
“We believe managed account providers can and do construct efficient investment portfolios, but plan providers, as fiduciaries, should push for more improved outcomes for their plan participants through negotiating lower fees and seeking to better align the interests of the managed account providers with those of participants,” Mikaylee O’Connor, principal and head of defined contribution solutions at NEPC, said in the news release.
NEPC called on managed account providers to transform their business models and urged them to offer subscription-based pricing that would align business incentives more closely with participant outcomes.
“By implementing a lower-based fee for less engaged participants, providers can offer an entry-level option, while more engaged participants could access expanded investment options through tiered subscription offerings,” O’Connor said.
O’Connor proposed a single-digit base fee for less engaged participants and a series of subscriptions for additional services and/or investment exposures for individuals who engage with the accounts and want the additional features.
Additional features might include access to an adviser, retirement income and distribution advice, and the ability to use off-menu investment options, she said in an email.
The average managed account fees ranged from 0.00% to 0.50% of assets, according to the survey. The median account fee was 0.36%.
The survey is based on 137 defined contribution plan sponsors representing $408 billion in assets and 3.2 million plan participants. It was conducted at the end of 2023.
