Why Select Managed Accounts as the Qualified Default Investment Alternative

Managed accounts offer a personalized approach to investing. Participants receive a customized plan for saving and investing for retirement. Ongoing reviews, recommendations and support are also included. Ultimately, a professionally managed account can help guide participants toward better outcomes.

Improved technology, meanwhile, continues to transform the retirement industry. Technology continues to enhance capabilities while lowering costs. As fees continue to decrease, more participants are gaining access to managed accounts. At the same time, more participants are automatically enrolled into retirement plans than ever before.

Against this backdrop, how can plan sponsors provide more support to participants to help them meet their savings goals? One approach is to use a managed account as a plan’s default investment option or qualified default investment alternative, also known as a QDIA.

Here are four reasons to take this approach:

Help Increase Enrollment and Contribution Rates

Employees continue to feel overwhelmed when they think about retirement planning. They have an increased appetite for a personalized service. A 2023 study sponsored by our managed account partner, Stadion Money Management, reinforces the demand for a personalized investment account. It showed that 77% of employees surveyed believe that having a personalized investment portfolio will help better prepare them for retirement.¹

Many participants want professional help or advice to help them save through their workplace plan. Another study, this one by Cerulli Associates, showed that 70% of participants agree that a financial professional could do a better job of managing their retirement assets.²

Managed accounts can make it easier for employees to enroll in their plan and start saving more. A 2023 study conducted by The Standard for Mainspring Managed, our personalized account management service, found that managed accounts experience:

• 46% higher adoption rate than industry average of those opting for advice services
• 30% higher participation rate than non-Mainspring plans
• 29% higher contributions than industry average
• 3x growth in contribution rates than non-managed account plans³

Provide Guidance Customized for Each Participant

One-size-fits-all may not be the most effective strategy for generating retirement income. Individuals are unique. Their strategies for building retirement income should align with their unique needs. Two people born in the same year have age in common, but that’s typically where the similarities end.

When a participant invests in a balanced fund or a target date fund as a QDIA, the participant receives an off-the-shelf experience confined to the specific investment product. Managed accounts, on the other hand, offer greater customization. They may consider more participant details, such as income, gender, salary and deferral rate. This approach supports the development of a holistic investment and savings strategy. And that better aligns to an individual’s desired retirement income goals.

Another benefit is that managed accounts deliver a customized investment strategy without requiring additional engagement from a participant. Personalized allocations can be determined using data from a recordkeeper and plan sponsor.

Help Increase Age-Appropriate Equity Allocations

Stadion’s research found that employees defaulted into their managed account service have more age-appropriate equity allocations than colleagues making their own investment decisions.⁴

DIY investors may find themselves invested too conservatively or too aggressively based on their individual factors and the S&P Target Date Index. For example, 38% of DIY investors have either 0% or 100% equity exposure, which can be risky. Participants with a managed account receive a personalized allocation based on multiple data points. This may provide them with a more appropriate equity allocation.⁴

Keep Participants on Course

DIY investors face dangers including emotional decision-making and improper asset allocation. In its research, Stadion found that participants need help allocating their retirement investments. In Stadion’s managed account insights research, 80% of employees surveyed prefer help choosing investments to doing it themselves.¹

With managed accounts, investment professionals monitor each participant portfolio to ensure allocations align with a participant’s retirement goals. As life circumstances change throughout their journey to retirement, their investment strategy shifts based on a disciplined approach, not emotions.

Enhance the Personalized Experience

Look to The Standard to complement your investment strategy with managed account services. We offer flexible solutions, including no-cost and low-cost options when the managed account is used as the QDIA.

For more information about our personalized retirement readiness solutions, contact your local consultant.