MANAGED ACCOUNTS. Industry Overview and Fiduciary Best Practices

Similar documents
Investing done differently FOR FINANCIAL PROFESSIONAL AND PLAN SPONSOR USE ONLY. NOT FOR USE WITH EMPLOYEES.

CASE STUDY: Plan Sponsor Insights on Custom Target-Date and Re-Enrollment

Improving the Target Date Fund Selection

Customized Target Date Solutions

An Evaluation of Target-Date Funds for the Salesforce.com 401(k) Plan

Fiduciary Investment Services. Fiduciary Protection for Your Retirement Plan

Deep Experience. THOUGHTFUL INNOVATION. Target date solutions from T. Rowe Price

Retirement Plan Consulting

The Looming Liability of Target Date Funds

Choosing the right target date strategy for plan participants

Deep Experience. THOUGHTFUL INNOVATION. Target date solutions from T. Rowe Price

Considerations for Plan Sponsors: CUSTOM TARGET DATE STRATEGIES

Deep Experience. THOUGHTFUL INNOVATION. Target date solutions from T. Rowe Price

The Impact of the Default Investment Decision on Participant Deferral Rates: Managed Accounts vs Target-Date Funds

Benefit from a new fiduciary approach

Real solutions designed to improve participant outcomes.

Voya Target Retirement Fund Series

CITY OF VIRGINIA BEACH DEFERRED COMPENSATION PLAN. Statement of Investment Policy

Target Date Funds. Presented By: Andrea Bongiovanni, CFS, Senior Investment Analyst Joseph DeRosa, CIMA, Investment Strategist

Section 1-Proposed Investment Policy Statement. Proposed Investment Policy Statement

Custom Target Date Strategies: Considerations for Plan Sponsors

PRUDENTIAL DAY ONE SM FUNDS

The Case for Rethinking TDFs as QDIAs

Fiduciary Investment Services. Fiduciary Protection for Your Retirement Plan

The Default Investment Decision: Weighing Cost and Personalization

Fees, Plan Design and Participant Success Measures

VRS Investment Policy Statement For An Unbundled Defined Contribution Plan Structure

As plan sponsors realize a redesign is needed, target date funds get a second look.

Re-Evaluating the Use of CITs in DC Plans.

Oversimplification in Target Date Funds Endangers Participants Retirement Savings How are custom solutions evolving to mitigate risk?

Target-Date Funds: Not as Simple as Set It and Forget It

Are Custom Target Date Funds Right for Your Plan?

Your 401(k) Provider of Choice. Retirement Services

Portfolio Management Consultants Supporting Enterprises, Advisors, and their Clients

Separately Managed Accounts. Investment Advisory Solutions for Today s Complex Markets

Focus on DC: Target date investing trends and opportunities

WHO ARE YOU CALLING A FIDUCIARY? DIFFERENTIATE YOURSELF HELP YOUR CLIENTS

What s in a Name: White-Label Funds in DC Plans

Framework for investment policy statement

Contents. Executive Summary Full Data Tables Respondent Demographics Employee Eligibility Participation...

Defined Contribution Plans

Passive target date funds: Separating myth from reality. Many active decisions go into passive fund design

5/5/2015. Educate, Automate, Delegate. How Did We Get Here? 3 Simple Steps to Better Outcomes for Retirement Plan Participants

Investment Fund Sample Portfolios

Introducing BlackRock's Target Allocation ETF Models

Investment Option Performance

Are Custom Target Date Funds Right for Your Plan?

U.S. RETIREMENT MARKETS

Plan Sponsor Attitudes 2017

ADV Part 2A - Firm Brochure

Investment Options. Selecting the Right Retirement Plan Investments

401(k)omplete. Offering a 401(k) Has Never Been Easier

Investment Options Guide

The Pension Protection Act is 10 years old. While it helped write a recipe for better outcomes, there is room for icing on the cake.

Managed Accounts in 401(k) Plans: Solution or Fad. Linda Ruiz-Zaiko Bridgebay Financial, Inc.

FOR INSTITUTIONAL USE ONLY / NOT FOR PUBLIC USE

Voya Index Solution Portfolios

Plan Health Pro SM Workbook A guide to the information used in the evaluation process.

Empowering employees with Advice Access

Fees, Plan Design and Participant Success Measures

Overcome the Increased Scrutiny of Your Organization s Retirement Plan

Contents. Introduction to PSCA s 58th Annual Survey Respondent Demographics Employee Eligibility Participant Contributions...

Experienced investment management

403(b) Plan Recordkeeper Services Request for Proposals Questions & Answers 1/26/2018

Sophisticated investments. Simple to use.

Plan Sponsor Services

STRATEGIC. Sophisticated investments. Simple to use. Target Date Strategy Funds. russellinvestments.com

PLAN SPONSORS SPEAK WITH ACTION. The Shift from Recordkeeper Proprietary Target-Date Funds to Nonproprietary Solutions

DC Managed Accounts: Shining a Spotlight on Investment Advice

THE LA RETIREMENT FUND (The Fund) INVESTMENT POLICY STATEMENT SUMMARY

managed accounts QUALIFIED DEFAULT INVESTMENT ALTERNATIVES (QDIAS)

Considerations for Implementing a Custom Target Date Approach: A Guide for Defined Contribution Plan Sponsors

Target Income Models available through the TIAA Custom Portfolios Model Service Help participants target the retirement income they need

Target Date Funds. TDFs: Due diligence is more than set and forget for plan sponsors

Target date funds: Translating Department of Labor guidance into action

Fiduciary Considerations with Target Date Funds

Friday, August 24, Questions received in connection with Total Fund Overlay RFP No. NM INV-001- FY19 (Answers are in bold)

Contents. Executive Summary Full Data Tables Respondent Demographics Employee Eligibility Participation...

A New Paradigm DELIVERING RETIREMENT BENEFITS TO HEALTHCARE AND HIGHER EDUCATION EMPLOYEES

DEFAULT STRUCTURES IN DEFINED CONTRIBUTION PLANS

Attractive option for college saving

It s Getting Personal: The Shift to Customized Portfolios. Chris Weirath Head of Production Management, Managed Solutions Morningstar

QDIAs and Investment 101 for Plan Administrators. David Schultz, JD, APM FIS Relius

TARGET DATE COMPASS SM EVALUATE AND SELECT TARGET DATE FUNDS WITH GREATER KNOWLEDGE AND CONFIDENCE SM

The Cerulli Report Release State of DCIO: Evolving Asset Manager Opportunities in the Mid-Sized and Small Plan Marketplaces

Outsourcing: To Delegate or Not?

Powered By: The Retirement Plan For You And Your Employees

Fees, Plan Design, & Participant Success Measures

ERISA 3(21) and 3(38) Fiduciary Services

Investment Policy Statement for. MyHSA Program

Consulting HR Outsourcing Retirement Hot Topics in Retirement A Changing Horizon

USAA Investment Management Company USAA Managed Portfolios - UMP Program (Appendix 1) 9800 Fredericksburg Road San Antonio, TX

Designing Outcome-Focused Defined Contribution Plans: Building Sustainable Income for Retirees

A Better Balanced Benchmark Craig L. Israelsen, Ph.D. March 24, 2009

The Hidden Challenges of Customization

The Five Pillars of a Retirement Plan

401(k) Sponsor Adoption Guide. The Solution for your Company s Retirement Plan

USAA Investment Management Company USAA Managed Portfolios - UMP Program (Appendix 1) 9800 Fredericksburg Road San Antonio, TX

RESPONSES TO QUESTIONS FROM PROPOSERS FOR SFDCP S TARGET DATE FUND INVESTMENT MANAGEMENT REQUEST FOR PROPOSAL

USAA Investment Management Company USAA Managed Portfolios - UMP Program (Appendix 1) 9800 Fredericksburg Road San Antonio, TX

Transcription:

MANAGED ACCOUNTS Industry Overview and Fiduciary Best Practices

Industry Update Provider Overview CONTENT Managed Account Fees Plan Sponsor and Consultant Best Practices

INDUSTRY UPDATE

INDUSTRY TIMELINE Balanced Funds Risked Based Models Target Date Funds Customized Target Date Funds Increasing Levels of Plan and Participant Customization Managed Accounts

Provide participants with customized asset allocation, education, and investment selection services MANAGED ACCOUNTS Typically incorporate outside and partner assets Encourage increased deferral rates

Allocations are auto rebalanced and adjusted based on personal circumstance MANAGED ACCOUNTS (CONT.) Incorporate the plan s investment lineup and may provide ongoing investment monitoring Are typically an all or nothing election for the participant

LOCATION ACCOUNT BALANCE SOCIAL SECURITY AGE PENSION AND OTHER PLANS PARTICIPANT DATA SAVINGS RATE GENDER SALARY SPONSOR MATCH OUTSIDE ASSETS PARTNER ASSETS EXPECTED EXPENSES RETIREMENT INCOME GOAL LOAN BALANCE

INDUSTRY STATS Between 2012 and 2017, managed account assets increased from $108 billion to $271.3 billion* In 2017, DC managed accounts assets represented 3.6% of the total $7.6 trillion DC market Managed accounts are in line with the influential trends shaping the DC market (financial wellness, asset decumulation, and retirement income) * According to a Cerulli Associates report

SERVICES MAY INCLUDE ADVICE CALL CENTERS (OPERATED BY MA PROVIDER OF RECORDKEEPER) RETIREMENT INCOME FINANCIAL WELLNESS PLATFORMS PARTICIPANT COMMUNICATIONS SOCIAL SECURITY PLANNING

SUMMARY OF SERVICES OFFERED Asset allocation services Point-in-time advice option Professionally built portfolios incorporating participant specific variables Investment evaluation and ongoing portfolio management Rebalancing Incorporation of outside assets Participant engagement Census data Call center Video Email Outbound phone calls In-person consulatations

INDUSTRY TRENDS Dynamic or Hybrid QDIA Retirement Income Social Security Planning Not a current trend, but compelling: capped fees (e.g., max annual participant fee $1,500)

PROVIDER OVERVIEWS

THE LATEST INDUSTRY 411 Provider Footprint Billions $0 $50 $100 $150 $200 Financial Engines $168 Morningstar $63 Fidelity $40 Guided Choice $11 Everyone else $10 Assets Under Management

Financial Engines Morningstar INDUSTRY PROVIDERS Fidelity Guided Choice Russell Wellington

Years in the industry 15 Offer integrated and standalone experience Available on the following platforms Yes Fidelity, Empower, Wells Fargo, etc. (12 in total) FINANCIAL ENGINES Fee schedule 0-$100k= 0.60% $100k-$250k= 0.40% $250k-$500k= 0.25% Number of portfolios in asset allocation methodology Custom to each participant (over 800k) Incorporate active and passive management Yes Maximum # of variables permitted AA recommendation 14 Income planning services Yes

FINANCIAL ENGINES COMPELLING FEATURES Predominately found with largest RKs in large and jumbo plan segments New relationship with ADP Focus on participant education and communication 16% average participation rate Offers call center with licensed advisors

FINANCIAL ENGINES (CONT.) COMPELLING FEATURES Not actively marketing platform as QDIA solution Offer in-plan, non-annuity, income solution (works with existing line-up) Three service offerings: Free point in time advice Managed accounts Personal advisor (185 retail centers)

FINANCIAL ENGINES (CONT.) INVESTMENT SELECTION Pricing kernel : inflation, real interest rates, and dividend growth rate for U.S. market Pricing kernel outputs are expected returns, volatilities, correlations for cash, long-term bonds, and U.S. equites Generic asset model generates forward looking returns on 15 different asset classes Modeling will incorporate real estate, private equity, hedge funds, commodities, and TIPS Evaluate over 19,000 mutual funds on a monthly basis Provides qualitative reviews on more commonly held investments Model specifically for Stable Value funds (also handles wash rule) Incorporate family-specific glidepath information for TDFs modeling

Years in the industry Since 2003 Offer integrated and standalone experience Available on the following platforms No Most platforms except for American Funds and Mass Mutual (30+ RKs) Fee Schedule 0.0% 0.60% MORNINGSTAR Number of portfolios in asset allocation methodology Incorporate active and passive management Maximum # of variables permitted AA recommendation Distribution planning services Several hundred Yes +20 Yes

MORNINGSTAR COMPELLING FEATURES Personalized asset allocation, investments, savings rate and retirement age Risk Capacity methodology (total saved capital and human capital) used in lieu of a subjective risk tolerance questionnaire. Goals-Based Incorporate forward-looking estimates into assumptions about future returns Estimates your federal and state income, and capital gains taxes Charge recordkeepers a fee of 0.20% - 0.25%

MORNINGSTAR (CONT.) COMPELLING FEATURES Defaults to proposing a savings rate of 2% higher than minimum contribution needed to receive the full company match Call centers are typically provided by RKs View plan sponsor as the client Provide Retirement button Liability approach to drawdown methodology: Gamma

MORNINGSTAR (CONT.) INVESTMENT SELECTION Manger experience Performance record Manager history Alpha Style consistency Fund type Reviewed quarterly COMING SOON Cross-platform 3(38) service for advisors/rias

Years in the industry 15 Offer integrated and standalone experience Available on the following platforms Yes Fidelity and now on other RK platforms FIDELITY Fee schedule 0-$100k= 0.60% $100k-$250k= 0.40% $250k-$500k= 0.25% Number of portfolios in asset allocation methodology 101 Incorporate active and passive management Maximum # of variables permitted AA recommendation Distribution planning services Yes 24 Yes

Develops unique profiles for each participant Allows participants to see how changing parameters affects outcomes Multiple data entry sources including NetBenefits, through phone consultation or at investor center Incorporates Social Security Benefits FIDELITY COMPELLING FEATURES Cohort data of similarly aged participants used if participant info not provided Offers both point-in-time and full service managed accounts

FIDELITY (CONT.) Portfolio construction methodology develops a long-term asset allocation (LTAA) Sponsors can choose to enable active asset allocation; blending of mean-variance optimization of LTAA with fundamental insights on the current market environment generated by Fidelity s AA Research Team Allows for asset class tilts COMPELLING FEATURES Allows plan sponsors to elect low cost index fund only methodology

FIDELITY (CONT.) INVESTMENT SELECTION Evaluate every eligible investment option Regression analysis used to estimate alpha component of each investment NEWS FLASH Standalone PASW: Can be used on non-fidelity recordkeepers Fund performance refreshed daily Info used in optimization process when accounts reallocated (3 to 4 times a year) Total return Fidelity ranking (by manager excess return) Plan level analysis for final allocation

SUMMARY OF FEES

THE LATEST IN MA FEES Fees are slowly coming down Significant discounts for re-enrollment as default QDIA or when opt-in adoption is 20% One recordkeeper provides a maximum dollar amount a participant pays to retain high balance participants These services are provided for a fee, typically and asset based fee (~0.30% 0.60%). Fees schedules are commonly tiered: Plan Assets Fee $0 $100k 0.60% $100k $250k 0.50% $250 and higher 0.35%

PLAN SPONSOR AND CONSULTANT BEST PRACTICES

PLAN SPONSOR AND ADVISOR PLAYBOOK A good fiduciary exercise is to discuss the merits in offering a managed account program Not all managed account programs are created equal If you are not evaluating your plans managed account program, you should be Four critical pillars to a successful managed accounts program that should be evaluated are: Asset allocation methodology Investment selection and ongoing management Participant engagement platform Fees Managed account provider should serve as a 3(38) advisor Program should be acceptable to serve as the plan s QDIA (at least have the option)

PLAN SPONSOR AND ADVISOR PLAYBOOK There is no industry standard for assessing participant risk tolerance, nor is there a standard for which data variables are used in determining a participant s asset allocation Sub-advised solutions are growing. Eight of the top ten recordkeepers developed proprietary managed account programs that are sub-advised by one of the industry s established and recognizable investment advisory firms Participant engagement and experience: If the program doesn t effectively engage participants will it be able to provide a value proposition commiserate with its fee structure? What are plan participants obligations once they enroll in the program Does your recordkeeper offer choices when it comes to selecting a managed account provider? QDIAs and Hybrid QDIAs: What census data can the plan sponsor provide is key

MANAGED ACCOUNTS AS A QDIA Documenting the process Critical to evaluate the number of participant variables that can be provided through a census file Does the census file provide enough information for the managed account program to add enough value to justify fees Understand all fees associated with the program Hybrid / Dynamic QDIA offer a compelling option (less the increased savings communication)

HOW WILL YOU BENCHMARK BENCHMARKING MANAGED ACCOUNTS Is the program effective in getting participants to increase savings rates? What are fees for the program? How are fees assessed and what are the opt-out provisions? Does the service lead to a better participant experience and better retirement outcomes? Does the program s investment process add value? How effective is the program at obtaining participant data initially and on an ongoing basis? Is the platform fully integrated with the recordkeeper s website?

Evaluating Managed Accounts should be broken into two major categories: OPINION Asset allocation and investment management services Participant engagement services

Enrollment PARTICIPANT ENGAGEMENT Monitoring Retirement

Asset Allocation Methodology INVESTMENTS Initial Asset Allocation Ongoing portfolio management

Financial arrangements between recordkeeper and MA provider What happens with the managed account program if the recordkeeping is replaced What platforms are available EVALUATION (RFP) QUESTIONS Do participants get a free-trial period Provide a sample participant statement What is the process and fees for a participant to terminate service What plan sponsor reports are available (e.g., investment performance, participant utilization, other particpant demographics) How are fees disclosed to participants both initially and on an ongoing basis What services does the program offer specifically to separated/retired participants How does the platform handle passive investments Can the program be used as a QDIA Maximum portfolios created by methodology

Document Document the process Conduct Conduct due-diligence on managed accounts just like you would your plan s QDIA, stable value, or any other investment option Build If you are issuing a recordkeeping RFI or RFP, build it into the process BEST PRACTICES SUMMARY Remember Evaluate Remember the four pillars: asset allocation methodology, investment selection and management, participant engagement, fees Evaluate the participant experience including disclosures and reports Evaluate Evaluate the plan sponsor experience including demographic and performance reports Confirm Confirm what happens with participant data if the managed account provider or recordkeeping relationship is terminated

FI360 WEBINAR SERIES Webinar I: Provider Panel The leading providers in the industry will discuss their program capabilities and answer questions about their platforms. Additionally, they will discuss what features they are working on going forward. Webinar II: Advisor and Consultant Panel A diverse panel of advisors and consultants that work with Large, Mid, and Small size plans will discuss their experience with managed accounts and outline best practices for fiduciary due-diligence

Q&A Brent Petty Northwest Capital Management, Inc. brentp@nwcm.com