Pat Kavanaugh, Morningstar Investment Management LLC

We believe that one of the keys to retirement benefits is to look at a complete financial picture. We study the factors in financial planning that may help lead to accumulating greater wealth and the factors that help reduce the behavioral barriers to saving for retirement.

In a prior post, we discussed the challenges of helping employees prepare for retirement. We've also reviewed straightforward and customized retirement benefits options that plan sponsors can potentially offer to help make it easier for employees to save. Now, we’ll look at a more personalized solution: managed accounts.

What are managed accounts?

Managed accounts use data about individual employees to offer personalized portfolios that are professionally managed. Next to retaining a personal financial planner, it’s one of the only options that could offer employees a full retirement strategy, including a recommended savings rate, a target retirement date, and a retirement-income projection and goal. The utility of managed accounts stems from the ability to personalize the plan down to the individual employee level. Managed accounts also help an employee select a retirement-income goal and a realistic retirement date.

When can managed accounts be a good retirement benefits option?

Managed accounts could be ideal for a company that employs a diverse workforce, such as a global manufacturing company that employs well-compensated engineers and mid-level production workers. Managed accounts could also be used to help attract top talent in an industry where there’s competition for specialized skills.

What are some factors to consider about managed accounts?

Plan sponsors might be hesitant about managed accounts because of the potential costs involved. These costs can fluctuate significantly by provider, including some where the managed accounts service is included in the base recordkeeping fee. And while the participant pays the fees, research has shown that even after paying these fees, on average, managed accounts participants can see more income in retirement than those who do not use such a service.* There’s a misconception that managed accounts act like target-date funds unless each participant submits personal information. But a significant level of personalization can happen with the data that the recordkeeper can provide. Still, the more individual data provided, the more detailed the recommendations can be.

Please see below for important disclosure. 

*A total of 58,444 participants were included in the study based on available participant information and various filters and include those that used Morningstar Investment Management LLC’s Morningstar^® Retirement Manager^SM Managed Accounts or Advice service between the dates of January 2006 and February 2014.  Morningstar Retirement Manager is offered by Morningstar Investment Management LLC and is intended for citizens or legal residents of the United States or its territories. The investment advice delivered through Morningstar Retirement Manager is provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc.

For important information regarding the research statistics, and to download the full study, go to http://corporate1.morningstar.com/ResearchLibrary/article/700098/the-impact-of-expert-guidance-on-participant-savings-and-investment-behaviors/