Maximizing managed account benefits through active engagement
Managed account programs seek to provide retirement plan participants with personalized asset allocations and tailored guidance for their individual financial situations. For a participant to maximize the benefits of this customization, active engagement with the program is essential. Upon initial enrollment, participants are invited to answer a series of questions that inform the construction of their personalized portfolio and the financial guidance they will receive. While many of these questions will be assigned default answers, if a participant chooses to avoid the questionnaire, the scale of personalization in each participant’s portfolio will depend largely on the depth of their initial responses, as well as ongoing engagement with the provider if their circumstances evolve.
A common problem with these programs is that many people don’t answer the extra questions that would help them improve their profiles. These questions include their birth date, retirement age, and current account balance. These questions are often required to sign up or added directly from recordkeeping data. According to WTW’s database of leading managed account solution providers, on average each provider asked 13 optional personalization questions, with 66% of all questions asked having a response rate of less than one out of four participants.
Even important datapoints like those in Figure 1 saw low response . For example, the provision of outside account information saw response rates of between 8% and 21% depending on the provider.
This low engagement can reduce the potential ability of a managed account program to deliver truly personalized asset allocation and financial guidance, which meaningfully benefits participants.
WTW views participants as being categorized by their varying levels of engagement, ranging from default-oriented participants to fully engaged participants. Default-oriented participants are those that take the step to enroll in the managed account program but tend to have a low propensity for customizing answers to their personal circumstances or re-engaging with the program to provide updates as their life circumstances change. On the other hand, fully engaged participants are more likely to spend time customizing their responses at enrollment and engage with the customized communications of the program to regularly update them throughout their careers, quickly reflecting their evolving financial situations. Participants who are default-oriented typically receive a diversified portfolio with a standard glidepath, often not too substantially different than their plans target-date fund option, while fully engaged participants benefit from a dynamic glidepath that adjusts based on their changing financial situation over time and have a higher probability of meeting their desired retirement outcomes.
Figure 2 examines this difference in assigned allocation between when a participant provides only the mandatory personalization information (e.g., our default-oriented participant) and when they are engaged in providing information around their unique financial situation. The model shows that even for a participant with a relatively common financial situation, there is a meaningful difference in assigned allocation once they begin giving customized information about themselves.
However, for a participant with an outlier financial situation, this disparity is exacerbated. This results in a 38% difference in ending equity allocation. It is important to consider that for participants with these outlier financial situations, the impact of not engaging fully with their managed account solution can lead to unsuitable assigned investment allocations that can hinder instead of improving expected outcomes in retirement.
Ultimately, the selection and monitoring of a managed account program is the fiduciary responsibility of a plan sponsor. WTW believes a key part of this careful monitoring of a program is looking at how participants experience the program and how involved they are. WTW works closely with our clients to assess participant engagement within their managed account programs. We examine factors such as the frequency of engagement, the degree of portfolio personalization resulting from this engagement and identifying questions with the lowest levels of response or highest default rates. Using these insights, WTW helps plan sponsors develop targeted communication strategies designed to increase engagement in areas with the greatest potential for enhancing portfolio personalization and, ultimately, retirement outcomes.
To learn more about how WTW can help your organization enhance participant engagement and optimize managed account programs for better retirement outcomes, please contact us.
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