Fiduciary Insight
Managed Accounts: Enhancement or Liability?
The Industry Assumption: More Personalization Means Better Outcomes
Retirement plan providers have increasingly promoted managed accounts as the next evolution in participant investing.
The message sounds compelling:
- Participants receive personalized investment recommendations.
- Algorithms create portfolios based on individual circumstances.
- Technology delivers advice at scale.
- Employees who are unsure what to do get professional guidance.
On the surface, it sounds like the perfect solution.
After all, retirement investing can be complicated. Many participants struggle with contribution rates, investment selection, and knowing whether they are on track.
So why wouldn’t a more personalized approach be better?
That is exactly where plan fiduciaries need to slow down.
Because the fiduciary question is not:
“Is this a good idea?”
The fiduciary question is:
“Can we demonstrate that this option provides meaningful value to our participants for the additional cost?”
That is where the red line begins.
The Fiduciary Red Line: Additional Services Require Measurable Value
Managed accounts are not automatically bad.
They can provide value for certain participants in certain situations.
The issue is not whether managed accounts exist.
The issue is whether plan fiduciaries are evaluating them objectively.
A fiduciary must ask:
- What are participants paying?
- Who benefits from the additional fees?
- Are participants actually using the service?
- Are outcomes improving?
- Is this option better than available alternatives?
If those questions cannot be answered, the managed account may be a feature that sounds valuable but creates additional fiduciary exposure.
Why Managed Accounts Became Popular
The rise of managed accounts is closely connected to fee compression across the retirement plan industry.
As recordkeeping and administrative fees faced increased pressure, providers looked for additional services that could generate revenue.
Managed accounts were positioned as a premium solution:
“Personalized investing previously available only to wealthy individuals is now available to everyone.”
That messaging is powerful.
But fiduciaries have to separate the sales pitch from the fiduciary analysis.
A service can be innovative and still require scrutiny.
The Cost Question: What Are Participants Actually Paying?
Managed account fees commonly add an additional layer of cost on top of existing investment expenses.
Depending on the provider and structure, fees may range from approximately 25 basis points to 75 basis points or more.
That additional cost matters.
For example:
A participant paying an additional 60 basis points every year is not simply paying for a feature.
They are paying for a service that should create measurable value.
The question becomes:
Are participants receiving better outcomes after accounting for the additional fees?
If participants would have achieved similar results through a lower-cost option, such as an appropriately selected target date fund, fiduciaries need to understand why the additional expense is justified.
The Customization Question: Is It Really Personalized?
One of the biggest selling points of managed accounts is personalization.
But personalization requires information.
A truly customized investment approach typically considers factors such as:
- Age
- Retirement timeline
- Salary
- Savings rate
- Other retirement assets
- Risk tolerance
- Financial goals
Without meaningful participant data, a managed account may not be as personalized as it appears.
If a participant never updates information or completes required questionnaires, the investment recommendation may rely on outdated or generic assumptions.
That raises an important fiduciary question:
Is the participant receiving true customization—or simply a more expensive version of a default investment option?
The QDIA Question: A Higher Fiduciary Standard
Some plans use managed accounts as their Qualified Default Investment Alternative (QDIA).
This creates additional considerations.
When participants are automatically placed into a managed account, fiduciaries should be able to explain:
- Why was this option selected?
- Why is it better than lower-cost alternatives?
- What process was used to evaluate the fees?
- How are participant outcomes being measured?
A participant who actively chooses a managed account is different from a participant automatically placed into one.
The fiduciary obligation does not disappear simply because a provider recommends the option.
The Participant Usage Reality
One of the most important questions is also one of the simplest:
Are participants actually using the service?
Although managed accounts are available in many retirement plans, participant adoption remains relatively low.
That creates a challenge:
If only a small percentage of participants actively engage with the service, fiduciaries should carefully evaluate whether the cost provides enough value for the broader participant population.
Availability alone does not equal effectiveness.
Real-World Fiduciary Consideration: Don’t Evaluate the Pitch. Evaluate the Proof.
A common mistake plan sponsors make is accepting a provider’s explanation of why a feature is valuable without independently evaluating the results.
The provider may highlight:
- Number of plans offering the service
- Technology capabilities
- Personalization features
- Participant resources
But fiduciaries need different information:
- Actual participant utilization
- Total participant cost
- Investment performance after fees
- Comparison to alternatives
- Documentation supporting the decision
The question is not:
“Does this sound helpful?”
The question is:
“Can we prove this is helping participants?”
How Plan Sponsors Should Evaluate Managed Accounts
If your plan currently offers managed accounts, start with these questions:
1. What does it cost?
Identify:
- Additional managed account fees
- Investment expenses
- Any proprietary investment requirements
- Total participant cost
2. Who uses it?
Review:
- Enrollment numbers
- Participant engagement
- Percentage of assets using the service
3. What value is being delivered?
Ask:
- Are outcomes improving?
- Are participants achieving better results?
- Is the additional cost justified?
4. How does it compare?
Evaluate whether participants could receive similar outcomes through:
- Target date funds
- Other diversified investment options
- Existing plan resources
Fiduciary Homework: Evaluate Your Managed Account Decision
If your plan offers managed accounts, pull your latest reports and ask:
✓ What are participants paying for this service?
✓ How many participants actually use it?
✓ Can we demonstrate better outcomes?
✓ Is the investment approach truly personalized?
✓ Would a lower-cost alternative provide similar results?
If you cannot answer these questions, it may be time to reevaluate.
The Bottom Line
Managed accounts can be an enhancement.
They can also become a fiduciary liability.
The difference comes down to evaluation.
Fiduciaries are not responsible for choosing the newest feature or the most impressive technology.
They are responsible for making decisions that are in the best interest of participants.
At Fiduciary Wise, our approach is simple:
Participants first.
Not trends.
Not provider pressure.
Not assumptions.
Fiduciary responsibility is not about checking boxes.
It is about understanding where the red line actually is.
Stay thoughtful. Stay disciplined. Know where your red line is.
Watch our latest episode of The Wise Fiduciary Podcast or listen wherever you get your podcasts! Available now on Apple Podcasts, Spotify, YouTube, and more!
Managed Accounts: Enhancement or Liability? Out everywhere on Thursday, July 23rd.
About Fiduciary Wise
At Fiduciary Wise, we help retirement plan sponsors reduce fiduciary risk through independent oversight, governance support, and practical ERISA expertise. We serve as an independent fiduciary partner, helping organizations build stronger retirement plans while keeping participants’ best interests at the center of every decision.
Whether you need ongoing fiduciary support, retirement plan governance guidance, committee education, or help navigating complex plan decisions, our team is here to help.
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The information provided in this Fiduciary Insight is intended for educational purposes only and should not be considered legal, tax, or investment advice. Every retirement plan is unique. Consult with qualified professionals regarding your organization’s specific circumstances.