Investment Trends

401(k) Managed Accounts: A Value Proposition Lost In Translation

401(k) managed account investors more confident in retirement investment strategy than non-advice users

New research from Cerulli Associates validates an unmet demand for the type of help offered through DC managed account solutions. Download the full report here.

May 16, 2024, BOSTON—As the retirement industry continues its transition away from the defined benefit system, the onus is increasingly placed on individual plan participants to educate themselves and implement an appropriate retirement investment and income strategy. Cerulli finds that many plan participants are not equipped to handle this responsibility on their own; only 16% of non-advice users reported feeling very confident in their retirement investment strategy. By comparison, three times that, or 47% of defined contribution (DC) managed account program users, reported feeling very confident in their strategy.

This is compounded by the fact that these employees are largely uneducated about the benefits available to them through their employer-sponsored retirement plan. When asked to select the correct definition of “target-date funds” and “managed accounts,” approximately two-thirds of participants (67% and 71%, respectively) were either “not sure” or selected an incorrect definition, according to Cerulli’s latest white paper, 401(k) Managed Accounts: A Value Proposition Lost in Translation, developed with support from Edelman Financial Engines.

Data from a new survey of 823 active 401(k) plan participants suggests that there is unmet demand for the type of help offered through DC managed account solutions. Despite not fully understanding their options, most investors acknowledge they could benefit from professional advice, with 70% of plan participants agreeing that a financial professional could do a better job of managing their retirement assets. Approximately 50% of survey participants identified the ability to speak with a human advisor as one of the top-two most valuable elements of financial advice solutions. “Participants really value the human-to-human element of some managed account solutions available in the marketplace,” comments Shawn O’Brien, director.

The Potential Of DC Managed Accounts

Additionally, there needs to be a greater focus on translating industry jargon, including commonly used terms such as “personalization,” into simple, everyday language when describing DC managed accounts...

DC managed accounts represent a potential solution for 401(k) plan participants who exhibit confusion, low confidence, and misdirection in their attempts to secure a comfortable retirement. Particularly for those seeking access to human advice, this solution can offer participants peace of mind that they can’t get from other solutions, such as target-date funds. As one current managed account user shared, “The biggest benefit is that you’re leaving your retirement in the hands of an expert that knows how to safeguard your money so that you’re not worrying…‘Am I going to have enough for retirement by the time I hit retirement age?’”

Despite the expressed benefits of managed accounts by today’s users and the expressed needs of participants more broadly, the solution remains underutilized. To create awareness of DC managed accounts and enable underserved plan participants to make a more informed decision about the best solutions for their retirement savings and income plans, Cerulli encourages the industry to frame managed account programs as not just an “investment product,” but as an “employee benefit” that can improve participants’ financial and emotional well-being.

Additionally, there needs to be a greater focus on translating industry jargon, including commonly used terms such as “personalization,” into simple, everyday language when describing DC managed accounts. “Having to distinguish between the different service providers associated with their 401(k) plans and navigate unfamiliar industry jargon used to describe the products and services they offer can be confusing for even the most informed participants,” states O’Brien.

Concurrently, the industry should strive to craft new evaluation criteria and methodologies for quantifying the non-investment benefits of DC managed account programs in order to better inform participants of the full value of the solution.

Lastly, plan sponsors should consider using automatic re-enrollment plan design features as an antidote for any disengaged or at-risk participants, such as those with imprudent asset allocations or insufficient projected retirement income replacement ratios, who are most likely to benefit from a managed account program.




About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston, Cerulli Associates is an international research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.


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