In “Fiduciary Considerations When Adding and Reviewing Managed Accounts,” a recent entry in Cammack Retirement’s “Insights’ blog, John Buckley says that actively managed accounts offer plan participants “a more personalized investment strategy and the opportunity to further refine their retirement portfolios based on their own personal situation.” But he adds that “there are ever-present fiduciary considerations which must be addressed.” He says that among them are the following.
Participant Engagement and Experience. Buckley cautions that the matter of whether a particular option “may truly lead to a more positive participant experience and better retirement outcomes” is an important consideration. “Without participant engagement, a managed account does not provide its intended maximum benefit and, therefore, may not be worth the additional cost,” he writes. He posts some questions that may help in such reflections:
1. How robust is the managed account feature?
2. How complex is it for plan participants to fully engage with the program and to otherwise optimize their overall experience?
3. Is the managed account feature simple enough for all participants to share their outside financial information?
4. Is the program effective in illustrating the benefits of increased savings rates to ultimately encourage plan participants to save more for retirement on an individual basis?
5. What are plan participants’ obligations once they enroll in managed accounts?
6. Can plan participants opt out at any time? If so, how are fees assessed when they do?
Methodology Used in Making Investments. Buckley argues that it is important to understand the methodology used in creating a model portfolio, and that important considerations include whether the plan funds that ultimately comprise the managed accounts, as well as their lineup, are most advantageous to the program.
Carefully Consider Vendors. Buckley cautions that it is mistake to choose a managed funds vendor simply because one may be convenient; doing so, he warns could raise fiduciary concerns. Instead, he says, soliciting requests for proposals can demonstrate that due diligence is being exercised.
Reporting and Benchmarking. Buckley says that this has been, and remains, a major issue for managed accounts, as well as a fiduciary concern.
Terms and Fees. These are an additional fiduciary concern, Buckley notes; he cautions that contracts should be carefully reviewed and fees should be reasonable and proportional to services rendered.
“Adding a managed account option to a retirement plan can allow plan participants to develop more personalized investment strategies, but it does not come without fiduciary considerations for plan sponsors,” Buckley reminds.