Mega plan sponsors, which often serve as indicators of new industry trends, are pushing the envelope yet again, going beyond target date funds by offering more personalization to their plan participants through managed account vehicles. In fact, the proportion of Mega plans offering these customized allocation solutions as their 401(k) plan default investment option has increased from 5% in 2014 to 18% in 2015. These and other findings are included in the annual DC Investment Manager Brandscape™, a Cogent Reports study by Market Strategies International.
According to the report, Mega plans, defined as those managing $500 million or more in assets, report a strong interest in offering ETFs within managed accounts to their plan participants as a means of offering a cost-effective solution. Furthermore, these sponsors are significantly more likely to cite retirement income product offerings as a key reason for selecting a managed account provider.
¡°While target date funds continue to serve as the most widely preferred default investment option among most plans, this increased usage of managed accounts among Mega plans signals a growing desire in the industry to offer a more personalized solution for plan participants,¡± says Linda York, vice president of Cogent Reports. ¡°This shift echoes the rise in popularity of these robo-advice retirement vehicles that are customized for each individual investor and highlights new opportunity for investment managers to secure a place on the investment lineups of these larger plans as managed account providers.¡±
The report identifies the top investment managers that plan sponsors would likely consider for managed accounts and target date funds as well as other investment products. Among the larger plan segments, eight firms rank in the top ten for both managed accounts and target date funds. Within this competitive set, Vanguard earns the greatest consideration potential as a target date fund provider, while Charles Schwab Investment Management claims the lead position for managed accounts.
¡°Plan sponsors of all asset sizes are looking for target date fund providers with a proven track record of strong investment performance with competitive fee structures, yet the aspects of fiduciary protection and retirement income offerings play a significant role in selection of managed account providers, particularly among Large and Mega plans,¡± says York. ¡°From a competitive standpoint, we found that very few firms are able to distinguish themselves on these key attributes, and as such, a select few are setting themselves apart from the rest in a very crowded marketplace.¡±
