Managed accounts are helping employees of all ages with optimal benefit and uptake closer to retirement age
The percentage of managed account members sharing personal data and goals has doubled in the last decade, enabling a more personalized experience to better meets their needs
BOSTON, June 05, 2024–(BUSINESS WIRE)–Edelman Financial Engines (EFE), America’s top independent wealth planning1 and workplace2 investment advisory firm, today released a ground-breaking report that features data and insights gained from 20 years of helping employees save for retirement through its industry-leading managed account program.3
For two decades, EFE has been at the forefront of providing managed account services to employer-sponsored retirement plans. The program offers a solution for employees who want professional support and a more personalized approach to managing their retirement plan investments, along with unconflicted financial planning and advice from an independent advisor. The report, Igniting Growth Through Innovation, is a first-of-its-kind analysis of data that spans more than a million program members across different ages and career stages, the largest employers across industries, and the leading retirement plan recordkeepers.4
“Once known simply as a 401(k)-asset allocator to improve retirement readiness, the managed account has evolved into a robust financial planning platform that has changed how millions of individuals receive professional financial help,” said Kelly O’Donnell, President, Employer Solutions, at Edelman Financial Engines. “The steady growth of managed account services and the continued demand we’ve seen from employers and employees over the past two decades reinforces the importance of high-touch financial advice and planning solutions within the workplace.”
With 45% market share2 and over $221 billion in assets under management, EFE is the largest provider of professionally managed accounts in the industry, serving 1.2 million program members across nearly 700 employers and a majority of the largest plan recordkeeping platforms.4
Redefining Participant Success Beyond the Traditional Measures
A key takeaway from the report is that managed accounts are driving value for program members that extends far beyond providing help with asset allocation decisions. This can be seen through some of the positive trends in behaviors and outcomes from their use. For example, managed account members are contributing an average of 9.1% of their income to their retirement account, compared to 7.8% for non-members and 7.4% for individuals primarily invested in a single target date fund (TDF). Also, nearly half of managed accounts members are 50 years of age or older (47%) compared to just 29% of primary TDF users, reinforcing that employees need and want a more customized approach to their planning and investment strategy as retirement nears.
The data also shows a rise in the number of people taking advantage of the ability to personalize their investment strategy. During the last decade, as a way to address the increasing consumer demand for customized experiences, EFE added tools and options that provide a more comprehensive, tailored service such as enabling employees to add spousal information, estimated retirement expenses, and other sources of retirement income (pensions, spousal pensions, IRAs, etc.). The experience also includes interactive online levers to see in real-time how changes in contributions or retirement age might impact projected income goals. As a result of this, the number of members providing their personal data and preferences has double from 33% in 2014 to 74% in 2023. Greater personalization is critical for driving engagement and enhancing the success of managed account programs, as this can help create an advice experience that is geared more closely to a client’s needs and goals.
Additional insights from the analysis include:
Savings rates: 74% of program users increased their savings rate within a year of enrollment, and 41% are saving over 10% of their income.
Investment selection: 97% are appropriately invested compared to just 25% of their non-user counterparts.
Company Stock Holdings: Heavy concentrations of company stock in an employee’s 401(k) poses a risk to proper diversification. Nearly all members hold less than 20% of their assets in company stock. In comparison, 4 in 10 non-members hold more than 20% of their assets in company stock.
Social Security: Over the past two decades, EFE has found $36 billion in additional Social Security benefits for managed account members, an average of more than $148,000 per member.
Confidence in investing: 80% feel more confident in their investment strategy than they would if investing on their own.
Confidence in reaching goals: 94% of program members feel more confident that they will achieve their retirement goals because of the managed account solution.
The Power of Human Advice
EFE’s research reveals that nearly all managed account members find value in having unlimited access to speak to a licensed, independent advisor as part of the solution. Most importantly, those that engage with advisors find the interaction valuable in helping to achieve their personal financial goals. Market volatility can be one of the most important moments for employees to have the ability to speak with an advisor. Eighty-five percent of members that had a conversation with an advisor surrounding market volatility stated that the conversation prevented them from making a rash decision.
Additionally, retirement planning and retirement income are the top topics discussed with advisors. Transitioning to retirement can be a particularly complex and emotional milestone for employees and the ability to navigate it with an advisor who is free of product conflict is a valued, high-touch feature of managed accounts and not available with most other in-plan advice solutions. EFE’s embedded income solution, Income Beyond Retirement, helps employees build retirement income strategies with the support of an advisor.
Growth Through Continued Innovation
Looking ahead, there is ample opportunity to continue to evolve managed accounts and address the everchanging needs of both employers and their employees.
For example, the latest breakthrough technologies, including AI, can help create more personal, bespoke experiences for employees to navigate their financial lives. Additionally, employers can begin to expand plan design in ways that help drive employees towards the solution best suited for their needs and unique situations. The automatic transition from a target date fund to a managed accounts as part of the plan design has benefits for both the employee and the employer. And there should be a day when comprehensive financial planning in the workplace is a standard employee benefit.
“We’re proud that our managed account services have empowered employees of all ages and wealth to save more and invest with confidence, while helping employers improve their financial wellness programs,” added O’Donnell. “Looking ahead to the next 20 years, we’re committed to driving even more innovation and progress in the industry by embracing technology to elevate the employee experience, supporting plan designs that drive employees to the right help, and eliminating barriers currently hindering employees from receiving the financial help they deserve.”
More data-driven trends from EFE’s 20-year history are available here.
About Edelman Financial Engines
Since 1986, Edelman Financial Engines has been committed to always acting in the best interests of our clients. We were founded on the belief that all investors – not just the wealthy – deserve access to personal, comprehensive financial planning and investment advice. Today, we are America’s top independent financial planning and investment advisory firm, recognized by Barron’s1 with 145+ offices across the country and entrusted by more than 1.3 million clients to manage more than $284 billion in assets.5 Our unique approach to serving clients combines our advanced methodology and proprietary technology with the attention of a dedicated personal financial planner. Every client’s situation and goals are unique, and the powerful fusion of high-tech and high-touch allows Edelman Financial Engines to deliver the personal plan and financial confidence that everyone deserves.
1. The Barron’s 2023 Top 100 RIA Firms list, an eighth-year ranking of independent advisory firms, is qualitative and quantitative, including assets managed by the firms, technology spending, staff diversity, succession planning and other metrics. Firms elect to participate but do not pay to be included in the ranking. Ranking awarded each September based on data within a 12-month period. Investor experience and returns are not considered.
2. According to the Cerulli Associates Top-Nine Managed Account Sponsors by DC Assets survey of Defined Contribution managed account providers, The Cerulli Edge – U.S. Retirement Edition, 1Q 2024, Issue #70, Edelman Financial Engines is the largest managed account provider by DC assets and market share as of Dec. 31, 2023.
3. All data within is from Edelman Financial Engines’ Data Warehouse as of December 31, 2023.
4. Edelman Financial Engines workplace data, as of Dec. 31, 2023. The “millions of employees/investors” data point reflects the total historic number of plan participants who at one point were managed account clients of Edelman Financial Engines. Account Reviews represents the ongoing monitoring of the member’s portfolio efficiency and allocations from 2004 to 2023. Data represents Edelman Financial Engines services on both a direct and subadvised basis.
5. Edelman Financial Engines workplace data, as of Mar. 31, 2024.
© 2024 Edelman Financial Engines, LLC. Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. AM3615225
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