PLANADVISER - July/August 2018 - 53

ation, are the strongest candidates for a managed account.
" The effectiveness of managed accounts is determined by
the quality of information they can gather on participants, "
notes Corby Dall, head of 401(k) Advisors Intermountain,
an advisory firm in Sandy, Utah, and a 2017 PLANSPONSOR
Retirement Plan Adviser of the Year. " I promote managed
accounts in certain instances, where we meet, one-on-one,
and the participant can ask questions and provide more
information. "
Getting participants involved is the prime objective
for managed accounts, Shapiro says. " Most providers can
demonstrate that engaged participants will save more, be
smarter about their retirement date, use after-tax accounts
at higher levels, and follow a strategy to optimize what they
get from Social Security. That engagement is where you get
the most value. "
The customization comes at a cost, though. " It's not
uncommon to see managed account fees of 40 to 50 basis
points [bps], and that's just for the professional management.
You still have to pay for the underlying investments, "
Shapiro says.
Essential to the managed account value proposition is an
assessment of a participant's risk profile, typically through
a questionnaire inquiring on the size of losses a person
can tolerate. Stadion Money Management of Watkinsville,
Georgia, turned to university professors in finance and
psychology to develop a compact, nine-question survey to
divine each person's likelihood of pulling out of his investments
during turbulent markets.
Dall, however, is skeptical of their accuracy. " I find that
people's risk tolerance changes with the 'flavor of the day'-
that is, recent moves in the markets, " he says.
Moreover, only a few managed account solutions have
addressed the key challenge facing their target market:
converting employment years' savings into retirement
income. " Managed accounts would be a good home for a
range of retirement income products, but there has been
very little movement in the industry in the last five years, "
Shapiro says. " When those solutions do arrive, sponsors and
their advisers will have to assess whether their provider
is expert in modeling those products and helping retirees
with those decisions. That's very different from investing in
public equities and bonds. "
Addressing the 'Advice' Issue
Managed accounts represent serious competition for plan
advisers, many of whom have built their practice on a close
interaction with participants, and the very sort of advice
managed accounts dispense. Accordingly, some providers
have designed their services to enhance advisers' own value
propositions through their managed account technology.
Stadion has dedicated its StoryLine managed account
service exclusively for the adviser market, says Todd Lacey,
chief business development officer of the firm's retirement
unit. The service is not a fully individualized managed
account but provides six different glide paths and maps
the participant into one based on his risk questionnaire
responses, like a model portfolio arrangement would do.
From there, it adjusts allocations each year, like a targetdate
fund would.
" The adviser doesn't have to meet with each person
and build an allocation, " Lacey says. " We find that a lot of
advisers focus on the plan-level work of plan design, investments
and vendor searches but don't necessarily want to
build individual portfolios. We let them handle the plan
side, and we sign on as a participant-level 3(38) fiduciary,
taking discretion over the participant accounts. " Stadion's
next-generation products will enable advisers to select
funds that go into the company's portfolios and to set their
own glide paths.
Schwab Retirement Plan Services has developed adviser
managed accounts. " The adviser remains the fiduciary and
decides on an appropriate portfolio for the participant, the
way [advisers] have forever, with one-on-ones and group
sessions, " says Nathan Voris, the firm's managing director
of business strategy, in Richfield, Ohio. " They can also let
the participant do that on his own, using the adviser's intellectual
property and portfolio modeling. "
He adds: " For advisers who are not able to meet with all
participants, it's a great tool that leverages technology to
cover the entire plan. We recognize that it takes a while
for advisers to get comfortable with the due diligence of
managed accounts. This service opens that up and encourages
them to look again. "
Plan advisers can assist sponsors deliberating the
managed account decision, in several ways. " First, they can
help sponsors understand how the algorithm the managed
account engine uses for asset allocation aligns with the
plan's investment structure, " notes Martha Tejera, head of
consultants at Tejera & Associates, in Seattle.
Tejera also says that advisers can help sponsors sort out
which parties in a managed account arrangement-be they
recordkeepers, account providers, asset managers or asset
allocators-are being paid and how much.
" They can also help decide in an objective way how sponsors
should incorporate managed accounts-whether as a
QDIA or opt-in feature, and how much the sponsor should
push participants into taking them, " Tejera adds. " Generally
speaking, what is the point of the managed account, and
then how do you deploy it to achieve that goal? " -John Keefe
KEY TAKEAWAYS
* Participants near or in retirement, or with a complex
financial situation, are the strongest candidates for a
managed account.
* Managed accounts work best when the adviser and/or
investment manager can gather information from the
participant, including his risk tolerance.
* Advisers can help sponsors select the right managed
account for their plan by analyzing their algorithms,
investment methodologies and fees.
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