What role do retirement-plan advisors or consultants play in managed accounts? It can be easy to speculate that managed retirement accounts diminish these individuals’ responsibilities with the plan sponsor, but the added complexity of this service over target-date funds can often make the role of an advisor or consultant even more essential.
When it comes to target-date funds, advisors and consultants have a clear, singular responsibility to their plan sponsors, which is to regularly ensure that the target-date fund remains an appropriate choice for participants.
But online financial-planning solutions like managed retirement accounts have more elements to consider, such as helping participants: develop a savings strategy, identify an appropriate retirement age, maximize their Social Security benefits, and personalize investments to their unique situation. Additionally, these accounts can help investors think more holistically about their retirement savings and determine how to effectively convert their nest egg into sustainable retirement income.
These additional features and functionalities often mean that many of the go-to tools for evaluating target-date funds don’t work as well. Plus, since these participants can be invested in hundreds of customized portfolios, items like performance and portfolio appropriateness can be hard to track and evaluate. Therefore, it’s key to evaluate a number of elements beyond performance.
5 features advisors and consultants should evaluate in managed retirement accounts
As advisors and consultants work to manage this service’s numerous features, here are some of the important areas to keep in mind:
- Service model: Managed retirement accounts can reduce the fiduciary obligation of plan sponsors, but it’s important to identify who will assume fiduciary responsibility: the managed account provider, the recordkeeper, or the plan sponsor. Formally documenting this role can help ensure the fiduciary is aware of their responsibilities and holds them accountable for carrying them out.
- Participant experience: Consider how participants may want to access, learn, and interact with the service. Many participants use web-based tools, but some may prefer the ability to call customer service directly. To account for these various preferences, advisors and consultants should seek out platforms that integrate well with recordkeepers and are supported by a provider committed to continuous product improvement.
- Methodology: Even when fiduciary responsibility is offloaded to a managed accounts provider, advisors and consultants still play an important role. They should continue to evaluate the appropriateness of a managed accounts program for participants—just as they would for a target-date fund—by staying well-versed in the provider’s methodology.
- Participant outcomes: Are participants benefiting from the service? Indicators that they are may include improved savings rates, communication of personalized advice, and engagement with the managed-retirement-accounts platform.
- Continued treatment: Finally, take note of how a managed accounts provider treats participants who leave the plan. Is the provider capturing rollover assets? If so, is there a prudent process in place to help ensure the provider continues to have the participant’s best interests in mind?
Advisors and consultants are responsible for holding managed accounts providers accountable for information on these topics—as well as numerous additional aspects of managed retirement accounts—which makes the full scope of advisor and consultant responsibilities extensive.
The present and future of managed retirement accounts
The structure and operations of managed retirement accounts will likely continue to evolve over time. For instance, the industry recently saw the launch of a new service level known as advisor managed accounts. This service is designed to help enable plan advisors or consultants, rather than the managed accounts provider, to build the portfolios used in the service.
The introduction of this service is one example of the industry-wide growth of personalized advice—and we believe personalization is why managed retirement accounts can afford most participants the greatest chance of reaching their retirement goals. But we also understand that managed accounts may not be for everyone.
By sharing knowledge on these various options, we hope to help empower advisors, consultants, and plan sponsors to find the solution that best meets the retirement needs of employees.
Dan Bruns is a product and investment specialist for the Morningstar Retirement Solutions product group.