44 | planadviser.com july–august 2017
investment-oriented
“If target-date funds [TDFs] are the first iteration of the QDIA [quali- fied default investment alterna-
tive], I see managed accounts emerging
as QDIA version 2.0,” says Andrew
Harbour, head of the Atlanta office
of Graystone Consulting at Morgan
Stanley.
But Harbour’s practice currently
has no clients using managed accounts
as their plan’s default investment.
“Everybody is asking about [them], but
nobody wants to be the first to take
the plunge,” he says. “Plan sponsors
are wondering, ‘What is this managed
account solution that everybody is
talking about, and why would we use it
as the QDIA?’”
Harbour explains it this way: Think
of two 45-year-old employees who
have been automatically enrolled into
the same target-date fund. “In reality,
those 45-year-olds may be in totally
different phases of life,” he says. One
may be a high earner who has saved
steadily for retirement throughout
his career and who wants to retire
early. The other employee may make a
much lower salary, have an uncertain
retirement timeline, and may have
only recently begun saving for retire-
ment. “So, to make the argument that
these two people should get the same
target-date fund glide path and the
same investments does not make a lot
of sense,” he says. “Managed account
solutions can take into account factors
such as an individual participant’s risk
tolerance, account balance, compensa-
tion and current deferral rate.”
Yet, just 7% of plans utilize managed
accounts as the default investment,
compared with 34.5% using active
target-date funds and 21.6% using
indexed target-date funds, according
to the 2016 PLANSPONSOR Defined
Contribution (DC) Survey. Harbour
understands the current hesitation.
“In most cases, it’s an expense ‘drag’—
it’s an added cost. Clearly, it is easier
Art by Lars Leetaru
Default Thinking
How to advise sponsors about switching to managed accounts as the QDIA
