Analyzing the Value of Managed Accounts
Managed accounts provides a structured way to deliver personalized investment and savings-rate guidance within DC plans.
For the first time, we’ve examined managed accounts within the full complexity of real-world plan design and participant savings behavior—using millions of records across thousands of plans.
This new research shows that managed accounts improves projected retirement outcomes, even after considering fees and features like auto-enrollment and auto-escalation. This result is largely driven by higher sustained savings rates and disciplined portfolio construction.
The research also finds that managed accounts delivers the greatest value for younger, newer, lower- to middle-income, or self-directed participants.
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This commentary is for informational purposes only. The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment. The performance data shown represents past performance. Past performance does not guarantee future results. This commentary contains certain forward-looking statements. We use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.
Research on Analyzing the Value of Managed Accounts
The data of more than 3 million participants across thousands of employer-sponsored defined contribution retirement plans was included in Morningstar Investment Management’s study, “Analyzing the Value of Managed Accounts”. Participant data was included based on available information and various filters for those who used a managed account service during the 2024 calendar year. As the data was anonymized, Morningstar Investment Management has no knowledge if the data includes participants who were enrolled in the Morningstar Retirement Manager Managed Accounts service.
In no way should any performance shown be considered indicative or a guarantee of the future performance of an actual participant's portfolio with the same investment option or viewed as a substitute for an investment option recommended to an individual participant. Actual results of an individual participant may differ substantially from the historical performance shown for an investment option and may include an individual participant incurring a loss. Past performance is no guarantee of future results.
Performance returns were calculated using a time weighted, geometrically linked rate of return formula. Returns for periods over one year are annualized.
Morningstar Investment Management does not guarantee that the results of their advice, recommendations, or the objectives of an investment option will be achieved.
In no way should the results of this analysis be considered indicative or a guarantee of the future performance of an actual participant using Morningstar Retirement Manager or considered indicative of the actual performance achieved by an individual participant using Morningstar Retirement Manager.
To download the full research paper, please go to: https://www.morningstar.com/business/insights/research/analyzing-value-of-managed-accounts
A "DIY investor" is defined as an individual that has less than 90% of their portfolio invested in an "allocation" fund (e.g., target-date fund) prior to using the Morningstar Retirement Manager managed accounts service. A "TDF investor" is defined as an individual that has 90% or more of their portfolio invested in an "allocation" fund prior to using the managed accounts service. For the baseline scenario, non-MA investors are classified as a DIY investor if less than 90% of their portfolio was allocated to an "allocation" fund, based on Morningstar asset classification methodology. Otherwise, the investor is deemed a TDF investor. One limitation of this approach is that it may classify some participants with balanced fund holdings as TDF investors. However, given the prevalence of TDFs, we believe this assumption is reasonable for establishing a baseline.
Morningstar Investment Management defines "boost retirement outcomes" as an increase in the median/salary ratio by income level.
This analysis quantifies the impact of managed accounts on retirement wealth using Defined Contribution Outcomes Model ("DCOM") in two different ways. In the baseline scenario, the plan participant is either invested in a TDF or self-directs their investments. In the second scenario, for each plan in the dataset, Morningstar Investment Management simulated on a participant-specific basis whether the participant would be better off at age 65 if they adopted a managed accounts immediately at a cost of 40 basis points per year. Morningstar Investment Management's salary curve methodology is used to estimate both forward- and backward-looking real wages for the plan participants in the analysis. DCOM forecasts assets within the DC account to grow based on stochastic portfolio returns from Morningstar Investment Management’s Time Varying Model. The improvement in projected outcomes is the result of both savings and asset-allocation effects, with higher contribution rates being the primary driver. The impact of a wider dispersion in DIY investor holdings from more standard age-based asset allocations plays a role in the larger boost seen when DIY investors adopt managed accounts.