6 Questions to Ask When Evaluating Managed Account Providers

Managed accounts have become one of the most widely offered, and least scrutinized, services in defined contribution plans. They are often bundled into the recordkeeping relationship, priced as a percentage of participant assets, and adopted with far less diligence than the plan applied to its target-date default. Fees have come down in recent years and now commonly fall somewhere between 10 and 45 basis points a year on top of the underlying investments, with some plans landing above or below that range. For a service priced this way, that imbalance in diligence deserves attention.

As independent advisors who sell no products and receive no compensation from any provider, our only question is whether a managed account service earns its fee for the participants who use it. Before selecting a new provider, or renewing the one you have, a DC investment committee should be able to answer these six questions.

1. What fiduciary role does the provider actually take?

"Managed account" is a marketing term, not a fiduciary standard. Confirm in writing whether the provider serves as an ERISA 3(38) investment manager with discretion over participant portfolios, a 3(21) advisor offering recommendations, or something narrower. The distinction determines who is legally responsible for the allocation decisions, and how much residual oversight your committee retains.

2. What does the participant actually pay, and for what?

Ask for the all-in cost expressed in both basis points and hard dollars for a range of account balances. Managed account fees are typically tiered and scale with the size of assets, so the rate declines as a participant's balance grows; a saver with a large balance often pays a lower rate than one just starting out. Make sure you understand the full schedule, not just the headline rate. Then ask what the participant receives in return that the plan's default investment does not already provide. A managed account fee layered on top of a well-constructed QDIA, for a participant who never provides personalization data, is a cost without a corresponding benefit.

3. How personalized is the "personalization"?

The premise of managed accounts is individualized advice. In practice, many enrolled participants provide no data beyond age and balance, the same inputs a target-date fund uses for free. Ask the provider what percentage of enrolled participants have supplied outside assets, savings goals, risk preferences, or spouse information, and how the portfolio differs when they have not.

4. How are participants defaulted in, and is that appropriate?

Some plans use managed accounts as the qualified default investment alternative, or default older participants into the service automatically. Because the fee applies whether or not the participant engages, a default that sweeps in disengaged participants raises a direct fiduciary question: are those participants receiving value for the fee they are paying?

5. How is performance measured and reported?

Managed accounts are difficult to benchmark because each participant holds a different portfolio. Ask how the provider reports outcomes, net of fees and against a relevant benchmark or the plan's default, and whether an independent party can validate those results. "Better participant outcomes" is a claim, not a measurement.

6. Is the fee benchmarked against the market?

Managed account pricing varies widely and is frequently negotiable, particularly where the service is bundled with recordkeeping. A committee that has never benchmarked the fee against competing providers has no basis to conclude it is reasonable, which is the standard ERISA holds fiduciaries to.

This article is provided for general information and does not constitute investment, legal, or fiduciary advice. Fiduciary responsibilities depend on plan-specific facts; consult your plan's advisors before acting.