While many see target date funds as a blunt instrument, assuming that all people set to retire within a five-year window have the same investment goals, most would also agree they are a better choice than investors managing their portfolios on their own. But what about managed accounts?
In a recently posted analysis, PIMCO reviews best practices on how plan sponsors and their advisors can evaluate and monitor managed accounts. The article reports that custom target date and managed accounts are gaining significant traction, especially among larger plans — nearly one in three are using managed accounts, and have more than $100 billion in total assets, according to PIMCO.
Last year the GAO raised concerns about fees and found that plan sponsors have limited information with which to evaluate and monitor managed accounts. Another major concern: whether participants will take the time to engage with managed accounts.
The three major aspects of managed accounts that PIMCO says should be evaluated are:
- Glide path
- Fund selection
- Personalization
The article provides simple methods for testing each aspect of a managed account to determine the assumptions behind the glide path, the range and types of funds, including whether there is a bias toward active or passive funds and whether inflation protective vehicles are included, as well as the level of personalization that is possible.
Just as plan sponsors of most sizes have become more engaged and concerned about their DC plans, so too are participants. With $100 billion in assets — and growing — advisors who are not paying attention to managed accounts are at risk of being left behind.
