Plan advisers, consultants question value of managed accounts

Respondents to PIMCO survey say target-date funds offer better value

Apr 16, 2018 @ 2:41 pm

By Robert Steyer

A narrow majority of defined-contribution-plan advisers and consultants say managed accounts provide less benefit to participants than target-date funds, according to a survey by Pacific Investment Management Co.

Fifty-one percent of respondents disagreed with the statement that managed accounts' costs relative to target-date funds "are justified/reasonable given the value to participants," said a report on the survey of advisers and consultants who represent more than 17,000 DC plans with total assets exceeding $4.4 trillion.

Only 3% strongly agreed with the statement, while 10% agreed and 35% agreed somewhat.

Participants' inadequate cooperation with managed account providers is part of the problem. Forty-one percent of respondents disagreed with the statement that participants "tend to add personal information, rendering advice more valuable." Only 6% strongly agreed, 20% agreed and 33% agreed somewhat.

"We continue to hear that a lot of participants don't do it," Stacy Schaus, Pimco's executive vice president and defined contribution practice leader, said in an interview. "It's a challenge to educate them. I think there's more work to be done."

The survey of 77 consultants and advisers also found divergent views about the value of managed accounts. For example, 9% strongly agreed, 22% agreed and 38% agreed somewhat that managed accounts' investment methodology is "equal or superior" to that of target-date funds, while 32% disagreed. Also, 9% of respondents strongly agreed, 26% agreed and 43% agreed somewhat that managed accounts "help increase plan participation and/or contribution levels." However, 23% disagreed.


The survey noted a greater use of custom target-date strategies and custom multimanager/white-label strategies. To best assess this growth, Pimco analyzed responses from consultants who provided information on these topics for this survey and the 2017 survey.

For sponsors offering custom target-date funds, the number rose to 594 from 304. The amount of assets under management for this approach climbed to $211 billion from $153 billion.

"The single headline word for custom target-date funds is control," said Ms. Schaus, referring to sponsors' desire to manage glidepath design and underlying investments. "It can drive efficiencies and can drive down costs."

Respondents told Pimco that larger plans are the most likely to go with a custom target-date strategy. When asked what type of target-date strategy they would recommend for plans of different sizes, 53% cited custom approaches for plans with $1 billion or more in assets and 23% supported the strategy for plans with $550 million to $1 billion in assets. Four smaller categories received responses ranging from 8% to 3% for recommending custom target-date funds.

For sponsors offering the multimanager/white label strategy, Pimco reported the number rose to 123 from 105. Assets under management rose to $343 billion from $297 billion, based on sponsors who provided information in both survey years.


When asked to forecast this year, respondents said their clients are focused on fees. Given a list of what they expected their clients' top priorities would be, consultants cited variations of fees three times. Evaluating investment fees ranked first with 63% of responses; evaluating how plan costs were paid placed second (59%); and evaluating administrative fees (57%) tied for third with reviewing target-date funds.

Cost also figured prominently in why sponsors balk at offering in-plan insurance products such as annuities. When asked about the primary reasons clients might not offer in-plan options, 87% of respondents cited costs, up 13 percentage points from last year's survey.

Insufficient government support — an enhanced safe harbor — placed second with 62%, the same as last year. Respondents were given a list of 12 choices and multiple responses were allowed.

The role of a safe harbor has been a sore point for plan sponsors and providers, who have clamored for greater regulatory protection from the Department of Labor. Sponsors want to make sure they aren't liable for the failure of insurers they select if they offer an in-plan retirement income option.

The third-ranked impediment to offering in-plan products was communication complexity, which was cited by 59% of respondents, up 21 percentage points. Portability received 59% of comments, down 9 percentage points.

The survey also found that consultants and plan advisers believe in an expanded notion of financial wellness. When asked which services are important to include in a financial wellness platform, the top answer was budgeting, followed by retirement planning, emergency savings, debt repayment and financial education.

Ms. Schaus said she was "delighted" that consultants are focusing on multiple factors that can "undermine retirement planning and savings."

Robert Steyer is a reporter for InvestmentNews' sister publication Pensions&Investments.


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