Employee retirement plans see uptick in personalized management

Managed accounts in workplace retirement plans have really come into their own in the past three to five years, growing by 29% in 2014 alone, according to Fidelity.

That’s because “both employers and employees, they are recognizing the fact that when left to their own devices employees don’t make the best potential decisions,” said Sangeeta Moorjani, senior vice president of investment services in Boston. “That’s where more people are looking for do-it-for-me solutions.”

Employers have also come to realize that “participants or their employees aren’t actively engaging on a regular basis. Eighty-six percent of employees do the set it and forget it methodology. Once they’ve made their choice, they don’t go back and revisit it,” Moorjani said. “As we know, markets change, plan lineups change, personal factors of employees change, so this do-it-for-me [strategy] is becoming an important aspect people are tuning into.”

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Fidelity found in its research that “54% of do-it-yourselfers have not engaged with their investments in the past few years and three in four say they don’t have the expertise or discipline to manage their money. As a result, their investments may not be growing to their fullest potential.”

That’s why more employers are including managed account options in their workplace 401(k) and 403(b) plans. When employers are thinking about what choices to offer to employees they should consider three options, Moorjani said:

• A typical fund lineup that allows employees to choose their investments.
• A do-it-for-me option like a target-date fund, which invests in more conservative options as a person nears retirement.
• A managed account option that offers further personalization – instead of just looking at a person’s age, it also takes into account their overall financial situation, risk tolerance and whether or not they have other savings accounts or old 401(k) plans floating around.

“We do hope more and more people take advantage of it,” Moorjani said.
Ninety percent of employers are offering target-date funds in their plans, with an additional 37% offering managed accounts as well, she said.

“Employers are visiting this regularly to make sure they are setting their employees up for success,” Moorjani said. “We continue to do a lot of research on investor behavior. When they say they do it on their own, it worth it to go deeper.”

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Employers should be looking at whether employees are continuing to watch their accounts. Are they saving in them? Have they changed their portfolio in a while?

“Many people think they are do-it-yourselfers but they don’t articulate that behavior,” she said. “There is a need for managed accounts.”

Fidelity offers a proprietary managed account offering for workplace retirement accounts called Fidelity Portfolio Advisory Service at Work (PAS-W). The company added 790 new plan sponsors to this business for a total of 3,196 clients at the end of 2014, about 30 percent growth over the prior year.

These new clients represented 894 new plans and more than 690,000 newly eligible participants, bringing the total eligible assets to $240 billion for all Portfolio Advisory Service at Work clients, Fidelity reported.

Participants with managed accounts receive support and guidance from Fidelity through seminars at work, a national network of investor centers and online and telephone guidance.