401(k) Managed Accounts: A Misunderstood Value Proposition

In 4Q 2023, Cerulli Associates, in partnership with Edelman Financial Engines, the leading provider of workplace managed accounts and independent financial planning, published a white paper. The white paper highlights 401(k) plan participants’ understanding of and attitudes toward investment options and financial advice solutions offered through their retirement plan, as well as plan participants’ retirement goals, investment practices, and perceived value of financial tools and resources.

KEY FINDINGS: 

• Participants enrolled in a defined contribution (DC) managed account program are nearly three times as likely to state they are “very confident” in their retirement investment strategy: 47% of DC managed account users reported feeling very confident in their retirement investment strategy, versus only 16% of non-advice users.
• More than 70% of plan participants in this study were unable to identify the correct definition of DC managed accounts. Cerulli believes this poor understanding is leading to underutilization of what would otherwise be an effective solution for today’s participant needs.
• As evidenced through focus group discussions, plan participants’ poor understanding of DC managed accounts is largely driven by the need to discern numerous 401(k) plan service providers and solutions as well as an unfamiliarity with industry jargon and terminology.
• Approximately 50% of survey participants identified the ability to speak with a human advisor as one of the top-two most valuable elements of financial advice solutions. The 401(k) industry can do a better job at positioning the elements of a DC managed account that plan participants value most.
• Participants are three times more likely to pay a professional to manage their taxes than their financial investments. Cerulli believes positioning managed accounts as an “employee benefit” that offers human advice, as opposed to an “investment product,” could drive greater adoption.
• Through focus groups and individual discussions, DC managed account users expressed a strong appreciation for the core value proposition of managed accounts: delegating management of their 401(k) to a professional, the human advice component, and the fact that the solution is vetted by their employer.