As I've mentioned in two articles already, there was a fair amount of discussion on managed accounts at the annual #NAPA #401k conference two weeks ago. As my son taught me many years ago, if you want to understand the "Why" of something, sometimes it is easy as following the money trail. In other words, SHOW ME THE MONEY!
I suspect managed accounts - whether created and managed by the record keeper, a third-party asset manager, or the 401k advisor themselves - came about as a way to increase revenue. The 401k industry continues to experience fee compression on all fronts. Record keeping fees, third party administration fees, and advisor fees have decreased. One study noted advisor fees have declined 20% from 2013 to 2024 while the workload to manage a 401k plan has increased.
Managed accounts offer advisors and record keepers a way to increase revenue while meeting possible plan participants' needs. The key here is to make sure the plan participants want this type of service as discussed in my earlier article.
The move to managed accounts is likely also a response to the increasing prevalence of robo advice. It is anticipated that the robo advice market will likely control $1.5 trillion when all the numbers are added up year-end 2024. It is further expected that the rob advice assets will grow at 8.01% per year through 2027 according to some studies. It is understandable that 401k advisors wants to offer their own value-added version.
While 401k participants may be more sophisticated and better educated about financial markets, they are not expert investors. Many of them do not have time to focus on asset selection and monitoring. Managed accounts that are based on the individual participant data points and that change over time in response to that data could be an answer. These accounts might provide the customization participants seek without requiring the time component.
Better technology certainly is a reason that these types of accounts can now exist. But as always, just because the accounts are available does not mean they are right for your participants. As I mentioned in my last article on the "Shiny new object", shiny and new does not mean right.
And finally, I think these accounts came about in response to the realization that one size does not fit all when it comes to participants and their investments. Just because two participants might be age 57 does not mean they have the same financial situation. Managed accounts can try to account for individual variations (age, overall financial portfolio, projected retirement age, etc.).
The Parting Glass
As with just about every investment solution, there is a "right" audience. As plan sponsors and fiduciaries, it is our job to make sure we really understand audience needs and see if this solution solves the needs. There are numerous reasons why these accounts have come about. It is our jobs as fiduciaries to remain laser-focused on participant needs and to do right by them always.