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Are Those in Managed Accounts Different?

Industry Trends and Research

A new report finds that managed account investors were older, longer tenured and had higher balances than single target-date fund (TDF) investors—and those aren’t the only differences.

Image: Shutterstock.comWith information drawn from Vanguard’s forthcoming How America Saves 2023, the report finds that in the past 10 years the adoption of professionally managed allocations has seen steady growth and their adoption is likely to continue to increase in the coming years.

According to the firm’s data, the percentage of participants invested in a managed account program more than doubled between 2013 and 2022, though at 7% it pales in comparison to the 59% invested in a TDF (not that those target-date investors are relying upon that allocation in a traditional sense—the report claims that 29% of those TDF investors also had investments in other funds on the plan menu). However, TDFs—albeit fueled by automatic enrollment—enjoyed a comparable rate of increase.

Overall, 66% of Vanguard participants in DC plans had a professionally managed allocation at year-end 2022, up from 40% at year-end 2013.

Managed Account Advice

Meanwhile, the percentage of Vanguard plans offering managed account advice has grown nearly 30% over the past five years, and, in turn, the percentage of participants offered the service has grown by a similar amount, but the take-up rate remains relatively stagnant.

In this case, 41% of Vanguard DC plans offered managed account advice in 2022, compared to 32% in 2018, and more than 8 in 10 larger plans offered the service. As larger plans are more likely to offer advice, 77% of participants had access to the service. Yet, the take-up rate for participants using the advice when offered sits at 9% in 2022, up from 8% in 2018, but down from 10% in 2021.

Demographic Differences

As alluded to earlier, there were distinct differences between participants with professionally managed allocations and those without them, as well as distinctions among participants with each of the three types of managed allocations.

Participants who constructed their own portfolios tended to be older and longer tenured with higher average and median balances in 2022. Single TDF investors were younger, shorter tenured with lower account balances and were more likely to be in an automatic enrollment plan and to have been defaulted into the fund. In contrast, managed account investors were older, longer tenured, and had higher balances than single TDF investors.

“However, use of the strategy was not concentrated in certain demographic segments, highlighting the value managed accounts can provide to various cohorts of participants,” observes Jeff Clark, the report’s author and member of Vanguard’s Strategic Retirement Consulting team.  

Participants in managed account programs were also more likely to contact Vanguard and typically did so frequently, with nearly 4 in 10 (38%) of them engaging with Vanguard more than once a month. Meanwhile, single TDF investors were less likely than managed account and do-it-yourself (DIY) participants to access their accounts.

Savings Behavior

Additional data shows that participants, on average, elected to defer 9% of their pay in 2022. That said, participants in managed account programs saved at higher levels (11%), similar to the DIY investors, while single TDF investors saved at lower levels (8%).  

Managed account participants were also most likely to initiate a change in deferral percentages and were also the most likely to increase their saving rate on their own. On the other hand, single TDF investors were the most likely to have their deferral percentage increased through an automatic escalation program.

Meanwhile, 15% of all participants contributed to Roth accounts, but managed account investors were twice as likely as single TDF investors to contribute to these accounts.

Vanguard expects to release its 2023 How America Saves in June, with additional data and insights intended to help DC plan sponsors optimize plan design.