While managed account programs have a lot to offer 401(k) participants, particularly when it comes to getting financial advice, plan sponsors could do better in promoting them to employees, according to new research from Cerulli Associates.
The study, which involved focus groups, interviews, and a survey of more than 800 active participants over the course of Q4 2023, was commissioned by Edelman Financial Engines, a leader in providing workplace managed accounts and independent financial planning.
Only twenty-five percent of those surveyed reported feeling very confident about their retirement investment strategies, with sixty-two percent saying they’re only somewhat confident.
"401(k) plan participants lack a clear vision for their retirement, and many have not considered their retirement goals," the report from Cerulli noted.
The research found participants enrolled in defined contribution managed account programs were significantly more confident. Forty-seven percent of DC managed account users felt very confident about their retirement strategies, compared to just 16 percent among those not using advisory services.
However, despite the potential benefits of managed accounts, over 70 percent of survey participants failed to identify the correct definition of DC managed accounts, underscoring a broad-based lack of awareness and understanding.
The report also noted 401(k) plan participants without an advisor, because they’re not in a DC managed account and haven’t engaged one outside of their plan, face tougher challenges in saving for retirement.
The ability to consult a human advisor ranks highly among plan participants, with around half of the respondents placing it as one of their top two most valuable aspects of financial advice. That’s easily ahead of the runner-ups, comprehensive financial planning (26 percent) and sophisticated or unique investment strategies (22 percent).
Also tellingly, 44 percent of those surveyed emphasized the importance of having a financial advisor to help transform their 401(k) savings into a retirement income stream.
Read more: Pension plan vs. 401(k) plan
The study suggests that the 401(k) industry could improve how it communicates the benefits of DC managed accounts. While many participants don’t understand that managed account programs include access to human advice, being informed makes plan members much more interested to sign up and even pay higher fees for them.
Given that insight, Cerulli argues that positioning managed accounts as an “employee benefit” that features human advice, rather than an “investment product,” could be the key to driving greater adoption.
“Plan sponsors have a clear incentive to promote simpler, more effective participant messaging and positioning of their DC managed account programs within their broader employee benefits strategy,” Cerulli said.
A new proposal could end the ban on promoting client reviews in states like California and Connecticut, giving state-registered advisors a level playing field with their SEC-registered peers.
Morningstar research data show improved retirement trajectories for self-directors and allocators placed in managed accounts.
Some in the industry say that more UBS financial advisors this year will be heading for the exits.
The Wall Street giant has blasted data middlemen as digital freeloaders, but tech firms and consumer advocates are pushing back.
Research reveals a 4% year-on-year increase in expenses that one in five Americans, including one-quarter of Gen Xers, say they have not planned for.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
