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Dispatches Retirement Planning

401(k) Managed Accounts Are an Underutilized Resource

A study by Cerulli Associates outlines the value proposition of 401(k) managed accounts and their associated benefits for retirement plan participants.

by Max Hayes | September 2024

A study by Cerulli Associates outlines the value proposition of 401(k) managed accounts and their associated benefits for retirement plan participants.

The study, sponsored by Edelman Financial Engines, was conducted in the fourth quarter of 2023 using three focus groups and a survey of 823 working and active 401(k) plan participants. Focus group participants included managed account users, early career nonusers of managed accounts and late career nonusers. The weighted survey ensured that age, gender, total investable assets and retirement assets were diversified to better mirror the U.S. population.

Key findings include that a participant in a defined-contribution managed account program is nearly three times as likely to be very confident in their retirement investing strategy compared to those who have not used advice. Fifty percent of those surveyed ranked the ability to speak with a human adviser as one of the most valued components of financial advice solutions.

However, 70% of plan participants were unable to correctly define defined-contribution managed accounts, showing an extremely low level of knowledge. The study further found that only 8% of retirement plan participants used a defined-contribution managed account, while 38% were enrolled in their plan’s default investment and 35% were self-directed.

Therefore, researchers concluded that better communication and positioning of defined-contribution managed accounts as an employee benefit versus an investment product could be the drivers for higher adoption rates. The human advice component must be emphasized, with important steps dispelling participant misconceptions to bridge the gap in utilization.

These findings emphasize the need for more focused educational efforts that can clearly outline the benefits of defined-contribution managed accounts. Properly positioning these accounts as an employee benefit should drive stronger adoption by retirement industry practice and spur improved financial well-being for 401(k) participants.

Source: “401(k) Managed Accounts: A Misunderstood Value Proposition;” Cerulli Associates, May 16, 2024.

Discussion

ROBERT B from GA posted almost 2 years ago:

I'd like to see a long term comparison between an 'defined-contribution managed account' and an S&P 500 Index investor. The failure of too many casual investors, especially 401k investors, is reacting to events instead of actually investing. Buy high, sell low.....


JOHN L from NJ posted almost 2 years ago:

One of the major pitfalls in investing is taking advice from those who are "talking their book". Cerulli will benefit if 401 k investors sign up for their investment service. But what about the "Customer's Yachts"?


ROBERT A from NC posted almost 2 years ago:

I'm suspicious of any "study" done by an organization that's in the business of selling the sort of thing the "study" found to be positive. I've listened to those Edelman Financial Engines guys on the radio. Not impressed.


FRANCIS P from TX posted almost 2 years ago:

I agree 100% with John L and Robert A above. Does AAII’s publication of the Cerruli and Edelman pieces come with an AAII quid pro quo?


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