00:00This morning, the value of personalization through managed accounts.
00:08Joining me now to discuss this and a lot more, Matthew Kondos, the Senior Vice President with Lincoln Financial.
00:14Matt, always great to see you. Thanks for joining us this morning.
00:17Yeah, thank you, Jeff. I really appreciate being here and certainly applaud the work that you do with the BRN.
00:22Well, thank you, Matt. And I like this story about personalization.
00:26I think it's something that, you know, you're an industry expert.
00:28You've been in the industry for a long time. This is something that more and more we're talking about.
00:33So let's let's talk about personalization through managed accounts.
00:37What does that mean and what are we really talking about here?
00:40Yeah, I've been thinking about personalization in managed accounts for several years now.
00:46People don't walk into their doctor's office and expect their doctor to give them the same treatment as everyone else their age.
00:52They shouldn't expect that from their retirement plan either.
00:54People can get personalization by working with a financial professional to tailor their retirement planning to their own unique needs.
01:02Now, in an ideal world, everyone would have access to a financial professional.
01:06But that's just not feasible for many individuals who don't have high enough account balance or want to pay the cost.
01:12However, personalization can be brought into a defined contribution plan, like a 401k, 403b, or governmental 457 plan, and made available to the masses through a managed account.
01:24This service uses personal information about each employee to create and implement a portfolio of investments customized to each employee's needs.
01:35And unlike pooled investment vehicles, like mutual funds, managed accounts are customized and actively overseen by a portfolio manager or advisory team all within the DC retirement plan.
01:47And it can be complimentary to the plan advisor who can choose whether and how to participate in the offering.
01:52Matt, how has personalization evolved over time?
01:58Yeah, I think about the last 20 years, we've seen the evolution of investments trending to more customized services using data.
02:06An early example is target date funds.
02:09They were introduced decades ago and provide different allocation strategies where the investments automatically change over time.
02:16This is an investment offering to consider for those folks who don't necessarily have a complex set of circumstances.
02:21In other words, everyone is treated the same since off-the-shelf target date funds use one data point, the age of the participant.
02:30They are simple to understand and implement, and that's why many plans use them as the Qualified Default Investment Alternative, or QDIA.
02:38As the market evolved, custom target date funds were introduced to take into account more data, like plan-specific factors.
02:45For example, if we know the employer has a pension plan, then perhaps a more aggressive glide path or asset allocation for that plan might be appropriate.
02:54If I now focus on a managed account program, these provide plan participants with an investment recommendation that considers far more data in order to provide a more holistic and specific recommendation.
03:06Data points are passed from the plan record keeper in a secure way to the managed account provider.
03:12This data includes location, various account balances, social security impacts, salary, savings rate, gender, and more.
03:21And all these may be incorporated into an individual recommendation.
03:24And then my last point, over the years, we've seen a greater increase in the number of data points that managed account providers receive from record keepers, and have therefore seen far more personalized recommendations than we did in the 2000s when managed accounts were first introduced.
03:40So, Matt, are managed accounts something a participant sets and forgets, or are they actively involved?
03:47Yeah, Jeff, we've seen some plan participants who may not have the time nor interest to actively research the best investment options and asset allocation for their situation, or they may not have a high enough account balance to get a financial professional.
04:03Yet, they value personalization and look to the benefits package their employers provide as a way to get an institutionally offered, customized service for their situation.
04:12At Lincoln, like many record keepers and managed account providers, we offer a variety of options to help meet each participant where they are.
04:21Some individuals may choose to set it and forget it, leaving the management of their investments to the professionals, while others may want a more active hand in their portfolio and opt to receive advice when they choose to actively engage.
04:33For those that do choose to set it and forget it, though, we still recommend checking in with their account at least annually, or whenever their situation changes in a way that might affect their retirement strategy, such as a birth of a child.
04:47But unlike a target date fund, which rebalances according to a predetermined glide path, a managed account can and will make ad hoc adjustments based on evolving personal circumstances.
04:57Matt, there's a cost, I'm assuming, for this service.
05:02How do you determine value, and is our managed accounts worth that cost?
05:08Jeff, we often get questions about cost and whether it's worth it for a planned participant to pay the cost for a managed account, or have the employer select managed accounts as the QDIA and subject those participants to added cost.
05:21I don't think anyone should reject this service just because it costs more than a typical target date fund.
05:27Both the participant and the plan get a number of benefits, and I think it's well worth an evaluation to see if managed accounts would be a good fit.
05:35So we've talked about how our managed accounts provide fiduciary oversight through ongoing monitoring and rebalancing of a participant's portfolio to help account for market fluctuations and help them keep on track towards their goals.
05:48Furthermore, a participant can get advice on other areas of their retirement strategy beyond investments, such as their potential retirement age, when and how to take Social Security, ideal savings rates, how to take income between regular qualified sources and Roth sources, and more.
06:07The best part is that these benefits can be provided even if the participant doesn't directly engage.
06:12Data can still be passed securely over to the managed account partner, who uses it to personalize a participant's asset allocation.
06:20If the participant does engage later, the partner will be ready to support them.
06:24And then maybe one last point.
06:26According to research conducted by a large managed account provider, participants who began using a managed account have higher engagement in their retirement plans overall,
06:34with 72% increasing their savings rates, leading to potentially higher retirement income and improved confidence.
06:42Well, Matt, you just mentioned participant engagement.
06:45Have you seen an increase in interest in managed accounts as a service to be offered and one that's available?
06:54Yeah, so a couple things here.
06:56Lincoln recently conducted our biannual Wellness at Work study,
07:00where we interviewed over 2,500 employees across a variety of financial wellness topics.
07:0681% of respondents expressed interest in a managed account, including more than a quarter who are very interested or already using a managed account.
07:15When asked about the most appealing aspects of a managed account, their top three responses were that it would provide advice on how much to save and when to consider retiring,
07:24that they are managed by a professional money manager, and that they get individualized investment recommendations.
07:31This new research complements a report from Cerulee Associates last year, where more than half, actually 53%, of 401k participants surveyed indicated they would prefer using a service offered through their 401k plan versus finding a financial professional on their own.
07:50Matt, let's talk about the industry.
07:51Has the industry been supportive of tools, advice tools, and the utilization of them, such as managed accounts?
08:01Yeah, and we've seen managed accounts get implemented in a variety of ways, and I'm thinking of three in particular.
08:07Most common over the years is an opt-in approach, where participants have to actively choose to enroll.
08:13And we know life gets in the way, though, so we need to make it simple, for example, through a single sign-on approach via the retirement plans website.
08:20The next option is a qualified default investment alternative, or QDIA, where it's used as the plan's default investment vehicle.
08:29And then third, the dynamic QDIA has been a newer development.
08:33Here, a person starts out in a target date fund when they're younger and their retirement needs aren't necessarily as complex.
08:39Then at a certain trigger point, usually a specified age, they're automatically moved into a managed account service.
08:45Regardless of how it's implemented, participant education is important.
08:51Communication is really the key, and we found that education and engagement campaigns coming from the employer are typically well-received.
09:00That's because the employer remains a reliable resource and a conduit to a variety of personalized services to their employees.
09:07Well, Matt, I want to have you take out your crystal ball, and I want to ask about what's next for personalization, because we see a lot of conversation about artificial intelligence.
09:17We've had conversations about the inclusion of private markets, such as cryptocurrency or private equity and private market investments.
09:26Where do you see personalization going in the future?
09:29Yeah, so I have a couple thoughts here.
09:32First, I believe demand and expectations will continue to increase, especially as people get more personalization in other aspects of their life, like their experience when ordering products online or utilizing streaming services.
09:45As demographics change in the marketplace, there will be more acceptance of technology and utilization for things like education, engagement, and decision-making.
09:53Second, there's a bigger role for the DC plan advisor to play, and we've seen some of that already.
10:00As firms build out their participant strategy, they will engage further with managed accounts to better service participants in a customized way.
10:07And then lastly, I can see the managed account service providers expanding their offerings to include more guaranteed and non-guaranteed retirement income, private market investment vehicles, and additional financial wellness support.
10:22Many already have, and I think there's a great opportunity to help people plan for and experience the retirement they envision.
10:28Well, Matt, really appreciate you coming on.
10:31Thank you so much for sharing your perspective, and we look forward to having you back on the program again very soon.
10:37Well, thank you, Jeff. I really appreciate it. Take care.
10:39That's all for this morning. Till tomorrow, I'm Jeff Snyder. Stay safe, keep on saving, and don't forget, roll with the changes.
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