Managed Accounts and Financial Wellness Work Better Together

Managed accounts and financial wellness are finally being recognized as a valuable combination for retirement strategy.  Usage in defined contribution retirement accounts is picking up steam.  It turns out, the managed accounts and financial wellness combination, is integral when preparing for post-working years.

According to the latest Cerulli Edge data (purchase required to access full report), managed accounts are likely to play a critical role in retirement.   Decumulation-oriented retirement plan design is vitally important today.  Managed account usage in retirement plans was approximately 3-4% as of year-end 2019.  Cerulli expects adoption to become more widespread.

Currently, 28% of 401(k) plan sponsors offer managed accounts.  That figure increases for larger plans.  44% of those with at least $250 million in assets provide managed accounts.  Moreover, 17% of plan sponsors say they plan to offer managed accounts in the next 12 months, according to Cerulli.

Here’s how managed account programs work.

• A financial advisor assumes fiduciary responsibility and creates or recommends a customized portfolio for individual retirement plan participants.
• The fiduciary burden of risk can be reduced.
• Retirement plan committees simplify the investing process for participants.
• Advice and guidance inherent in managed accounts also ensures participants receive an appropriate asset allocation for their age and stage of life.

One benefit of managed accounts and financial wellness is that it’s easy to collect participant data.  Several platforms aggregate the data from the recordkeeper to the managed account provider. This, rather than having participants manually gather and provide it themselves.

Growing numbers of defined contribution retirement plans have adopted managed accounts in recent years.  However, education is a missing component in managed account programs.  Participants often enroll without understanding the crucial link between their overall financial well-being and how prepared they are for retirement.

Pairing, managed accounts and financial wellness helps to prepare participants for better futures.  Teaching critical skills such as budgeting, compound interest and debt management to high school students helps immensely.  Even a short-term saving for instance, a monthly “Holiday Club” – designed to set aside money to buy gifts during the holiday season instead of incurring debt, helps participants in the long run.

Larger retirement plans are more likely to offer financial wellness programs.  According to a 2020 study from the Employee Benefit Research Institute (EBRI), three-quarters of employers with 10,000 or more employees offer managed accounts and financial wellness initiatives.  The idea is to help participants improve their personal finances.  This, then sets them up to save and invest for long-term goals, like retirement.

There is one caveat for plan sponsors and retirement plan committees.  Your plan’s recordkeeper and/or financial advisor may offer similar financial wellness services as your managed account provider.  Therefore, you’ll want to determine whether it makes sense to use the financial wellness services offered by your managed account provider.  Weigh the options carefully.  Consider how to deliver targeted communications to participants who may benefit specifically from using managed accounts and financial wellness services in your plan.  Doing so provides yet another way you can help to improve retirement outcomes.