Displaying items by tag: managed accounts

Managed accounts are set for a major transformation as current models often benefit providers more than participants due to high fees. Employers must evaluate how providers personalize portfolios and whether participants actively engage with these features. 

While managed accounts generally offer strong investment management, fee structures can erode some of their value, requiring significant equity exposure increases to match target date fund returns. Personalized portfolio returns tend to fall within a narrow 5% to 7% range, with minor impacts from strategic asset allocation shifts. 

A subscription-based model could better align incentives, offering lower-cost options for less engaged participants while providing premium services for those seeking greater customization. Inconsistencies in provider methodologies, driven by factors like risk tolerance and retirement readiness, highlight the need for greater transparency. 

Finsum: This is an interesting strategy, but if done properly managed accounts are a great vehicle for retirement and defined contribution. 

Managed accounts have evolved beyond simple investment tools to become a key retirement income solution within defined contribution plans. While their availability has increased significantly over the years, participant adoption remains low, with only 7% utilizing these accounts despite widespread access. 

Critics point to ongoing fees as a drawback, though proponents argue that managed accounts provide tailored financial planning, including retirement timing and Social Security optimization. 

Some newer offerings even incorporate annuities or structured withdrawal features, turning managed accounts into a direct retirement paycheck solution. This customization makes them an attractive option for plan sponsors considering alternatives to traditional target-date funds. 

Finsum: As the marketplace continues to adapt, managed accounts are gaining traction as a more personalized and flexible retirement planning tool.

The rise of separately managed accounts (SMAs) is reshaping the financial services industry, shifting brokers from commission-driven sales to fee-based consulting focused on long-term client relationships. However, this transformation remains incomplete, as many advisors misuse SMAs, treating them like expensive mutual funds rather than customizing portfolios for individual needs. 

Despite SMAs' advantages, such as tax-loss harvesting and tailored asset allocation, few brokers fully leverage these features, with customization rates alarmingly low. A significant hurdle is inadequate diversification, especially as lower account minimums make it difficult to properly spread investments across multiple managers and styles. 

To address these challenges, brokers need better training, more robust technology platforms, and a commitment to understanding both their clients and their investment managers. 

Finsum: Ultimately, success with SMAs requires not just offering the product, but delivering ongoing service, customization, and disciplined portfolio management—a shift that, while slow, seems inevitable

The latest T. Rowe Price study reveals a notable shift in how employers and advisors approach retirement income within workplace plans. More plan sponsors now hold defined views on retirement income compared to previous years, reflecting increased engagement on the topic. 

Managed accounts with income planning features and target-date investments offering managed payouts or embedded annuities are gaining interest as viable solutions. Collective investment trusts (CITs) have also surpassed mutual funds as preferred target-date vehicles due to their cost-effectiveness and flexibility. 

Additionally, the study highlights growing employer interest in financial wellness programs, including emergency savings accounts, as tools to enhance employee satisfaction and retention. While ESG integration garners moderate support, the study identifies regulatory and implementation challenges as barriers to broader adoption.

Finsum: Research shows how important advisors are to clients in setting up DC strategies, and they can leverage their influence to shift perspectives. 

Expanding tax-efficient investing options, firms are now utilizing direct indexing technology to make separately managed accounts (SMAs) more advantageous for tax management. Unlike funds, SMAs allow for individualized tax strategies because the investor owns the underlying assets directly, an option now expanding with high demand. 

Direct indexing remains the most common approach for tax-efficient SMAs, enabling tailored tax-loss harvesting by strategically selling select stocks. Some firms are also adapting this approach to actively managed equities, though balancing loss harvesting with stock selection can be complex. 

Tax management in fixed-income portfolios, though more limited, still offers advantages, especially during interest rate hikes. 

Finsum: Model portfolios are gaining traction, for similar tax efficiency reasons.