There are no light-at-the-end-of-the-tunnel declarations by providers, record keepers, researchers and DC consultants about managed accounts' ultimate impact on DC plans. For now, most managed account growth will come from certain participants and from plans that offer this service as an option rather than as a qualified default investment alternative.
Managed accounts' popularity is most prevalent among participants nearing retirement whose financial circumstances are more complex than younger participants, said Shawn O'Brien, senior analyst, retirement markets practice at Cerulli Associates, Boston. "Early in their careers, it's not as complicated."
Components of complexity include age, calculations of post-retirement spending, the role of Social Security, anticipated medical expenses and plans for drawing down account balances, he said.
"Target-date funds are well-suited for people just starting out" at work, added Kelly O'Donnell, Boston-based executive vice president and head of workplace for Edelman Financial Engines LLC.
"Over time, sponsors look at something more than one-size-fits- all" to accommodate employees with larger balances and more complex finances, said Ms. O'Donnell, whose firm provides managed accounts for 1.1 million participants in more than 7,000 corporate 401(k) plans.
"We've seen a great acceptance by sponsors as an opt-in," said Winfield Evens, director of investment solutions and strategy at Alight Solutions LLC, Lincolnshire, Ill. "The feedback from clients who offer it is very strong."
According to an Alight survey of DC sponsors, 66% of respondents offered managed accounts last year. Half said this service was "very effective" and 49% said it was "somewhat effective," Mr. Evens noted.
Alight's experience shows that sponsors that promote managed accounts via education campaigns have better participant usage, he said. "It takes a while to drive up the participation rates."
Mr. O'Brien said he expects managed accounts to continue growing — faster than overall DC assets — in part because costs are declining. "Our conversations with managed account managers show that fees have come down significantly in recent years," Mr. O'Brien said, although he declined to provide details.
Several consultants and researchers agreed that managed account fees have been reduced but they didn't provide details. Larger plans have greater bargaining power over price and some actively managed target-date funds may charge more than managed accounts.
Greater participant and sponsor comfort with managed accounts, greater use of technology among record keepers to provide individualized data and greater availability of interactive strategies by providers have played a role in the growth of managed accounts, Mr. O'Brien said.
The record keepers' ability to use technology to provide detailed information about a managed account participant is an improvement over the days when participants had to fill out forms to divulge the information necessary to produce the most benefit from a managed account service. "That was a roadblock making more work for the participant," he said.
Still, there are enduring roadblocks in addition to higher fees. Sponsors fear being sued over alleged ERISA violations and participants must be convinced that offering more personal information makes the service more valuable.