Morningstar, DFA To Launch Managed Retirement Account Service – Financial Advisor Magazine
Morningstar and Dimensional Fund Advisors are planning to launch a new managed account service that’s aimed at advisors who want to offer 401(k) plans that create stickier, lifelong relationships with participants.
The platform expands the Morningstar Retirement Manager user interface to allow advisors to provide clients with smaller account sizes and personalized advice, Morningstar Vice President Julie Varga said during a webinar hosted by Broadbridge today.
The service, which the firms expect to roll out this fall, offers four diversified managed account portfolios ranging from a starter portfolio to sustainable and socially resonsible portfolios. The service also provides personalized recommendations to increase investment levels, sustainable annual spending plans and what the partnership calls “holistic” retirement drawdown plans.
Target-date funds that change allocations as participants age can work well for many retirement plan participants. But that still leaves many participants “who can benefit from a more customized experience that fully considers their individual circumstances and more closely resembles the financial planning experience that many of you have been so successfully delivering to your private clients for years now,” Ashish Shrestha, vice president and head of the Advisor-Defined Contribution Group at Dimensional Fund Advisors, said during the webinar.
While traditionally investors and their advisors have rolled assets out of retirement plans at retirement, this new service is designed to take investors through retirement by providing account aggregation, Varga said.
“Participants can get asset allocation guidance on all of their outside retirement accounts. You may have a 401(k) from a prior employer, or outside IRAs. We can pull in pensions and health savings accounts, too,” added Varga, who said that service can also provide advice on when to take Social Security benefits. Morningstar plans to offer annuity advice beginning in the fourth quarter.
The service also helps participants maintain discipline, increasing their chances of meeting their retirement goals, according to Morningstar. While nearly 11% of investors pulled money out of the stock market after the March 2020 crash, likely locking in their losses, only 1.3% of investors in managed accounts made the error, according to Morningstar research.
Morningstar found in a study a couple of years ago that, before entering a managed accounts program, 74% of investors would not have met the goal of producing 100% of their take-home pay in retirement, Varga said. For those not on track, 71% increased their savings rates after enrolling in managed accounts program and the increase on average was 2% of their salary.
“Participants who enrolled in a managed account program increased their savings rate from about 6% on average to 8%. This is obviously a really big deal as it relates to investors being able to meet their retirement goals,” Varga said.
Morningstar also looked at whether or not participants were getting a full employer match in their retirement plan. “We saw a 12% increase in folks who enrolled in a managed accounts program,” she said.
“There was a 47% increase in the amount of money participants have in retirement after enrolling in managed accounts versus prior to enrolling. These are very big numbers and really do prove the value that managed accounts do bring to the table,” Varga added.
The weighted average expense ratios for the Dimensional portfolios run from 12 to 29 basis points on the top end. For plans under $20 million in assets, Morningstar will charge 20 basis points. For plans over $20 million, the cost is 17 basis points. Recordkeeping fees will also be added, Shrestha said.
