Morningstar ties managed accounts to higher deferrals

Plan advisors working with employer-sponsored retirement plans have a Morningstar number to cite in the next enrollment meeting: participants who use managed accounts within defined contribution plans defer a larger slice of pay than those who do not.

The number comes from Morningstar research released Aug. 25 that covers millions of participants across thousands of plans. Among savers aged 40 to 44, those with managed accounts deferred 9.1 percent of pay against 7.2 percent without; savers 50 to 54 deferred 10.6 percent of pay, against 8.3 percent without. The same research finds managed-account participants are more likely to contribute enough to receive the full employer match. Spencer Look, associate director of retirement studies at Morningstar Investment Management, and Jack VanDerhei, director of retirement studies there, wrote the study.

The accounts offer a personalized investment solution akin to robo advice, but Look is careful not to claim the added deferral rate flows from the product itself. "We're not claiming this is causal," he said; engaged savers may simply choose the feature. Still, he sees value in the accompanying communication: "Getting that communication and extra support could be what helps tip the edge to save a bit more." The paper adds that the accounts' value "cannot be evaluated solely through asset allocation or investment performance," and that the relationship "is not uniform."

For an advisor, the practical move is to treat managed-account enrollment as an engagement event, not an investment decision. The sign-up moment reveals a participant already willing to act on a suggestion, which makes it the right time to ask about raising the deferral rate or confirm the full employer match is being taken. A concrete deferral record is a better reason for that follow-up call than a generic participation pitch, even if the correlation falls short of proving cause.

Taxes belong in that follow-up. "The more that we can encourage people to feel comfortable contributing to their plans, the more tax savings they're going to recognize," said Daniele Griffith, director of tax operations at April Tax Solutions. As this publication has argued, the product is the advice; the managed account is the envelope that carries advice into an enrollment discussion and gives the practice a reason to ask for more.