Memo on Recordkeepers’ Managed Accounts and Account Aggregation Features

August 2023

The retirement plan industry is never static.  Regulators and recordkeepers are continuously seeking to make saving and investing easier.  These enhancements are always on our radar, especially when they have fiduciary considerations.  This month, we’ll focus on “managed accounts” and “account aggregation” features.

Managed accounts, which fall under the umbrella of “Planning” or “Advice” tools are designed for participants who want a more customized approach than target date funds but prefer not to select and manage their own investments. They’re typically provided by a third party selected by your recordkeeper.  Participants choose whether to opt in, and can do so during the enrollment process or via the recordkeeper.  Unlike target date funds, a managed account/advice service will build and regularly rebalance a portfolio based on a participant’s specific circumstances.  In general, the provider will solicit feedback annually to ensure the model remains appropriate. 

Adding a managed account/planning & advice feature is optional  There is no plan level cost, so offering them may not seem like a big deal.  However, those that enroll have a fee deducted from their assets.  As for any provider paid out of plan assets, fiduciaries are responsible for prudently selecting, monitoring and ensuring the fee is reasonable for services.    

A professionally managed account can add value and may be substantially less expensive than what a person would pay for similar support externally.  If your plan includes or is considering a managed account or planning/advice feature,  we encourage a conversation with the recordkeeper, which we would be happy to initiate.  Following are some key pieces of information that will help support your decision to offer (or not):

  • How did the recordkeeper choose the provider, and how often do they monitor them?
  • What is the scope of service available?
  • How does the provider engage with a participant initially, and ongoing? What happens if the participant is unresponsive?
  • How many participants utilize it, and what are the individual balances?  This service generally makes sense for those with higher asset levels, and some websites make it easy to “accidentally” enroll. 
  • Do call center representatives recommend managed account services?  If so, under what circumstance?  Are they acting in a fiduciary capacity? Is their compensation influenced by increasing usage?
  • Does the recordkeeper have discretion to move participants into a managed account based on certain criteria (like at a certain age)?
  • What is the fee structure, and are there “thresholds” to reduce it?
  • Is any portion of the fee redirected to the recordkeeper?  If so, where is that disclosed?
  • How does a participant un-enroll?

Lastly, we’ll comment on “householding” features.  Many recordkeepers provide this service directly through the retirement plan website.  It allows a participant to link external accounts (prior employer 401(k)/403(b)s, IRAs, bank accounts and such) and view them via a single log in. 

While there is no stated cost to either the plan or participant, it’s possible recordkeepers (or their affiliates) use this data to actively market participants for rollovers, managed account services, or other potential revenue drivers.  Plan fiduciaries are responsible for managing and protecting participant data. 

The courts have not yet shown conviction that participant data is an asset of the Plan, however, several settlements for excessive fee cases have included terms that require a contractual restriction on the service provider’s ability to cross-sell products or services not related to the plan or plan participants unless a participant first requests them.  Protecting participant data is becoming part of the solution to excessive fee cases because it helps mitigate the movement of plan assets from a lower-cost retirement vehicle.   

It’s fair to say many people no longer take time to read the fine print.  Although a participant may click “Agree” to a lengthy disclosure in order to access a householding feature,  it’s up to those who chose the recordkeeper and other providers or  to understand how data might be used or shared-even if a participant consents. 

In this day and age, we all appreciate convenience.  It generally comes at a cost.  Let it be in the form of a conversation.  This year is a great one to query your recordkeeper if they offer a data aggregation tool, how it works, who has access to the data, and how whether it can be used for marketing or cross selling.  If you don’t ask for this agenda topic, we’ll be recommending it in the coming months.

The material contained in this document is for informational purpose only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. The information provided has been derived from sources believed to be reliable but is not guaranteed the accuracy and does not purport to be a complete analysis of the material discussed. This material is not intended to provide and should not be relied on for tax or legal advice. Any information contained herein is of a general nature. You should seek specific advice from your tax or legal professional before pursuing any idea contemplated.

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