Background:

Managed accounts (MAs) have spent two decades moving from a niche offering to being seriously considered for plan default status. DCIIA’s Retirement Research Center (RRC) conducted research to better understand how MA providers feel about the current and future state of their services. The RRC commenced with in-depth interviews of 12 leading MA providers—and identified six themes that define where the service stands today, and where it may be headed.

Findings:

1. Personalization is the goal, but it’s challenging to measure. Every interviewed provider points to personalization as the defining value proposition of MAs. However, the challenge is proving that value. Most providers rely on before-and-after comparisons of metrics like contribution rates, allocation stability during volatility, and account balances, rather than investment performance since MA outcomes are inherently different for each participant. As a result, providers—who understand MAs are a service and not a product— are repeatedly forced to reinvent how they communicate the service’s impact on enrolled participants to employers. This challenge is further complicated by an ongoing debate among providers about who benefits most from managed accounts Some believe MAs can benefit all participants, while others argue that target date funds (TDFs) are better suited for younger participants with less complex financial situations.  
2. Varying delivery methods of advice provide employers with options. Providers provide advice across a wide spectrum, ranging from basic guidance to holistic fiduciary planning that incorporates outside assets. Employers evaluating MAs are best served if they understand the level of advice a given service provides, as well as the advice and resources already available to their workforce. While the differences can be meaningful in how advice is offered, it may also be duplicative if an employer offers advice elsewhere to their employees.  
3. Fee compression is likely to continue, but value will ultimately justify fees. Fee compression is already underway with most providers charging 20-39 basis points (bps)—significantly less than years ago. As pricing continues to tighten, providers are shifting toward a broader “mosaic” of value indicators such as savings behavior, engagement, diversification, behavioral stability, etc. This is meant to defend against pure fee-based competition.  
4. The Qualified Default Investment Alternative (QDIA) question remains unsettled. Dynamic QDIA models, where participants shift from a TDF to a MA at a pre-determined point in time such as a specific age or when complexity triggers are met, are gaining traction. Five of the 12 interviewed providers actively favor this approach. But the absence of a reliable benchmark for personalized portfolios, combined with lingering litigation risk, has kept most employers from moving forward.  
5. Engagement is essential, but providers diverge on how they collect data. Some approach data collection as a continuous, iterative process of nudges and prompts, whereas others believe that recordkeeper and payroll data alone can power sufficient personalization. Reported engagement benchmarks vary widely across the industry, and providers measure different engagement metrics, underscoring how inconsistently the concept is defined and measured. Despite these differences, virtually all providers strongly agreed that more engagement is better.  
6. Artificial intelligence and private markets represent the next frontier. Providers are optimistic about AI’s near-term role in improving communications, behavioral nudges, and cell center support; however, most remain cautious about AI-generated advice given unresolved governance questions.  Sentiment regarding private markets within MAs remains mixed. Most providers agreed that MAs are a more appropriate vehicle to distribute private markets securities than other solutions like TDFs.

Bottom Line:

MAs are best understood as a service with meaningfully different philosophies on advice, data, fees, and default design—and not a product. As the industry approaches an inflection point driven by the Baby Boomer retirement wave, the demand for personalization, increased need for advice, and potential availability of non-core assets means that employers must carefully evaluate MAs when considering an addition or change in services to meet the diverse needs of their workforce. To view the executive summary or read the full report (login credentials required), click here or here.