When considering managed accounts inside a retirement plan, you may want to consider two questions:
- Why offer a managed account in a retirement plan?
- Can personalization be available without investing through a managed account?
A managed account is a personalized discretionary portfolio service offered by a 401(k) or a 403(b) plan to their participants and is generally provided by a fiduciary investment manager selected by a plan fiduciary, an employer for example. Like a single factor, such as age, for target date funds, a managed account delivers a personalized portfolio that can provide an optimized outcome based on a variety of participant data made available on a record keeper platform.
Personalization is the single most important benefit realized through managed account service. Target date funds and managed accounts both qualify as default investments known as qualified default investment alternative or QDIA. Default investment allows plan fiduciaries to invest contributions into a multi-asset portfolio without any participant permission or involvement and represents a lion’s share of all new contributions. Maximizing the benefits of a managed account service requires participants to actively share more personal data to further inform the asset allocation decision on an ongoing basis to align the portfolio with changing factors over time. Additionally, there is a high-cost fee for a managed account service.
For years personalization was only accessible under a managed account option but now, there is an alternative default solution: Individualized Glide Path Solution or iGPS.
iGPS can be thought of as a personalized target date fund and a great alternative to a managed account.
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