401(k) Managed Accounts Are a Solution to Financial Security, Not a “Threat”
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
I always find it odd when a financial advisor writes an article questioning the value of financial advice. This usually happens when the advice under question deviates slightly from what that advisor offers. I’m picking up on some of this in a recent article by Brian Allen titled, “The Threat of Managed Accounts for Plan Advisors.”
It misses the mark, starting with the title.
Let’s define some terms. “Managed accounts” means different things in different domains. Within a 401(k) context, managed accounts could be better described as a robo-advisor, providing guidance on optimal portfolio risk levels, fund allocations, savings, retirement age, as well as other ancillary services such as when to claim Social Security retirement benefits.
The primary method of engagement with managed accounts is typically online, although most solutions offer call centers and some even offer access to on-site and/or local advisors. There are differences in the scope of services offered by managed-accounts providers and across recordkeepers, but they tend to be relatively similar among the largest managed-accounts companies, such as Financial Engines, Morningstar (my employer), Fidelity and Guided Choice.
Allen suggests that managed accounts “compete” with robo-advisors in 401(k) plans. This is incorrect. Managed accounts is the predominant robo-advisor in the 401(k) space. In fact, managed accounts should probably be considered the original robo-advisor, since it has been available for more than two decades, well before the recent growth and availability of robos in the retail space.
Attacking the potential value of robo-advisors is a fundamentally an attack on the value of financial advice and financial planning (i.e., helping households achieve financial goals). I am a strong believer in the value of advice (and advisors) and there’s lots of ways to deliver it. Robo-advisors aren’t the only solution, but they definitely fit within a larger ecosystem of tools that can help people accomplish their goals.