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Managed Accounts Ease Retirement Savings ChallengesBy: David McLeod, Managing Director, Advised Assets Group, LLC Despite the development of innovative features and technology for defined contribution plans during the past 20 years, many government plan sponsors' to-do lists for this year likely still look like this:
Thankfully, a variety of specialized investment alternatives - particularly managed accounts - will make those tasks easier to achieve this year. "Tell Me What to Do" Most participants recognize their lack of investing expertise, says Bob Wuelfing, president of RG Wuelfing & Associates, a leading retirement industry research and consulting firm. "When we survey participants about their needs in managing their defined contribution accounts, the most common response we get is, 'Tell me what to do.' Many employees are insecure about the investing process, and prefer professional advice to going it alone," Wuelfing says. Equally important is the need for plan participants to personalize their retirement planning to ensure the successful achievement of individual retirement goals. "Knowing how much to save is as important as knowing where to invest," says Gregg Seller, senior vice president of government markets for Great-West Retirement Services®. "Participants also need to consider their own individual circumstances and goals. When they take these steps, they're more confident that their retirement plan is right for them," he says. Fortunately for both plan sponsors and participants, there is an option that addresses these needs. It's a managed account. Unlike "lifestyle" funds that have pre-set asset allocations based on risk tolerance, or target date funds that have an asset allocation mix designed for a particular retirement year, managed accounts analyze individual factors. They focus on the participant's goals and provide specific recommendations on how to reach those objectives. The employee and/or employer provide data about the employee's deferral rate, account balance and account investments. The employee then provides information about his or her expected retirement age and retirement goals. Managed accounts also can take into consideration an employee's or spouse's assets outside the plan, such as a defined benefit plan. Managed Account Features In our program at Advised Assets Group, we partner with an outside independent financial expert, Ibbotson Associates, to:
As a result of this more personalized approach, managed accounts have become increasingly popular among plan sponsors and participants. In fact, according to industry research, through the end of the third quarter of 2007, more than $56 billion had been invested in managed accounts through retirement plans, an increase of more than 50 percent from the $37.3 billion reported at the same time in 2006. 1 By following a best practices approach to investing and retirement planning that is monitored quarterly, rebalanced and reallocated over time to reflect individual life changes and market adjustments, a managed account enables plan participants to increase the opportunity and probability for improved outcomes and a financially secure retirement. In the end, that is the goal for any retirement plan. Footnotes 1 Cerulli Associates |
