Last updated: 19:29 / Sunday, 6 December 2015
Report by Cerulli

Managed Accounts Should be Positioned as a Service, Not Just Another Investment Option

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Managed Accounts Should be Positioned as a Service, Not Just Another Investment Option
  • Retirement Markets 2015: Growth Opportunities in Maturing Markets
  • Managed accounts should be a complement rather than an adversary to target-date funds
  • With increases in DC's assets, there is more interest in financial planning and personalized strategies

The most recent research from global analytics firm Cerulli Associates takes a critical look at the opportunity for managed account providers in the $5.2 trillion private defined contribution (DC) market. As the DC market matures, the asset management industry continues to reassess and measure the efficacy of a target-date product as the primary retirement investment solution for the majority of savers.
Likewise, DC plan sponsors are closely scrutinizing the results of their target-date fund selection as it continues to gather a greater percentage of plan contributions.
 
"Managed account providers may experience greater success in the DC arena if managed accounts are consistently positioned and presented as a service, not just another investment option," states Jessica Sclafani, associate director at Cerulli. "Importantly, managed accounts should be a complement rather than an adversary to target-date funds."
 
"An increase in the availability of managed accounts reflects the DC industry's growing interest in customization as a route to supporting improved participant outcomes," Sclafani continues. "As participants' investable assets increase, they become more interested in financial planning and personalized strategies, which are not addressed by the two most common QDIAs-target-date funds and balanced funds-but are both components of managed account programs."

Cerulli's latest report, Retirement Markets 2015: Growth Opportunities in Maturing Markets, focuses on trends in the $21.5 trillion retirement marketplace, including assets and growth projections in the different retirement segments - private/public defined benefit plans, private/public defined contribution plans, and the IRA market.

"Rather than fighting an uphill battle in trying to displace target-date funds, Cerulli recommends managed account providers focus on capturing the segment of participants who are nearing retirement, have amassed outside assets, and are looking for additional services," Sclafani explains. Cerulli estimates there are approximately 19.5 million households ages 45 to 69 with investable assets ranging from $100,000 to $2 million. Cerulli considers these households, which represent $9.1 trillion in investable assets, as the target market for managed account providers.

Cerulli believes that managed account providers must partner with DC plan sponsors to make sure the differentiated value of a managed account is conveyed to participants (e.g., access to personalized advice or the ability to incorporate assets outside of the DC plan for a more holistic financial planning experience). For participants to opt in to a managed account service, they need to understand what they are paying for. This requires extra work from both the plan sponsor and managed account provider in educating the plan participant base.

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