Managed Accounts and Financial Well-Being Work Better Together

Managed accounts and financial well-being are finally being recognized as a valuable combination for retirement strategy. The use of defined contribution retirement accounts is growing. It turns out that the combination of managed accounts and financial well-being is integral to preparing for the post-work years.

According to latest Cerulli Edge data (purchase required to access full report), managed accounts are likely to play a critical role in retirement. The design of a stacking pension scheme is of vital importance today. The use of managed accounts in pension plans was around 3-4% at the end of 2019. Cerulli expects adoption to become widespread.

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

Here’s how managed accounts programs work.

  • A financial advisor assumes fiduciary responsibility and creates or recommends a personalized portfolio for members of an individual pension plan.
  • The fiduciary burden of risk can be reduced.
  • Pension committees simplify the investment process for members.
  • The advice and guidance inherent in managed accounts also ensures that participants receive an appropriate asset allocation for their age and stage of life.

One of the benefits of managed accounts and financial well-being is that it’s easy to collect participant data. Several platforms aggregate data from the registrar to the managed account provider. This, rather than having participants collect them manually and provide them themselves.

More and more defined contribution pension plans have adopted managed accounts in recent years. However, education is a missing element in managed accounts programs. Participants often register without understanding the crucial link between their overall financial well-being and how prepared they are for retirement.

Matchmaking, managed accounts and financial well-being help prepare participants for a better future. Teaching essential skills like budgeting, compound interest, and debt management to high school students helps immensely. Even a short-term economy, for example, a monthly “vacation club” – designed to set aside money to buy gifts during the holiday season instead of going into debt, helps long-term participants.

Larger pension plans are more likely to offer financial wellness programs. According to a 2020 Employee Benefit Research Institute (EBRI) study, 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 prepares them to save and invest for long-term goals, such as retirement.

There is a caveat for plan sponsors and pension plan committees. Your plan’s registrar and / or financial advisor may offer similar financial welfare services to your managed account provider. Therefore, you will 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 provide targeted communications to participants who may specifically benefit from using managed accounts and financial wellness services in your plan. This offers you another way to improve your retirement results.

Chalk Steff

Chalk Steff

Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff is also executive director of The Plan Sponsor University and is currently a professor at The Retirement Adviser University.

Chalk Steff

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