How America is saving with managed accounts

Growing up in the ‘80s and ’90s, with a somewhat spotty social life, I watched a lot of sitcoms. For the younger readers, this was an era when networks churned out 20 or more episodes each season. When the good ideas began to dry up, writers would occasionally create clip shows, starting with some loose premise ("We've sure had a lot of good times in this house . . . ”) and then filling the rest of the time with excerpts from previous episodes. Even as a kid, I remember perceiving this as a cop-out and feeling like I was being cheated out of something.

Fast-forward 30 years and, while the clip show may be a thing of the past, I'm still on high alert for dereliction of duty by content creators. So you can imagine my hesitation when I was encouraged to devote an Advice Guy blog post to participant investment advice in the recently released How America Saves 2024. “How could I do that to my millions of adoring readers?” I thought to myself. "They expect cutting-edge, original content!” But after a bit of reflection, and a reminder that making wild claims about my readership could hurt my credibility, I realized what a great idea it was.

How America Saves is one of Vanguard's (and the industry's) premier annual publications, and its compelling data and insights have a lot to offer for those of us interested in defined contribution advice and managed account programs. I encourage you to spend time directly with all 114 pages of data-filled goodness, but for now, here are my top five advice-related highlights and takeaways:

Forty-three percent of plans, representing 77% of participants, offer managed accounts. These numbers are up from 37% and 63%, respectively, just four years ago (Figure 1). Clearly, interest in managed accounts is growing.  

Of those participants with access to a managed account, 10% were enrolled in 2023, a rate that has held steady at 9% to 10% since 2019.¹ This stability is interesting, as so much else has changed (in particular, many more plans offering managed accounts and the explosion in target-date fund usage; see number 4 below).

When compared with the overall population, managed account users are older and longer tenured, with higher average and median balances. Compared with do-it-yourself investors, however, they are younger and less tenured, with lower average and median balances.²

This is one of my favorite findings, as it addresses the objection I commonly hear that managed accounts are good only for older investors with higher balances. In fact, there's demand for managed accounts by investors across the income, age, job tenure, and account balance spectrums.³ Clearly, these individuals are seeing value in being enrolled, whether that's portfolio, financial, emotional, or time value, or likely some combination of the four. 

Many participants defaulted into the plan and into a qualified default investment alternative find their way into managed accounts. Seven percent of participants in plans with automatic enrollment are in a managed account, compared with 8% of those in plans with voluntary enrollment.³

It's not uncommon for the largest plans (those with more than 5,000 participants) to offer features that are less common in smaller plans (for example, partial distributions and Roth and after-tax sources), but I couldn't find a more extreme case than that of managed accounts (Figure 2).

Compared with 80% of the largest plans, only 22% of plans with less than 500 participants offer managed accounts. And it's not that there's something different about the participants or their need or demand for advice; enrollment is consistent at 8% to 10% across plan sizes.⁴  I'd love to hear other thoughts (no bad ideas in brainstorming!), but I suspect it's more a function of plan sponsor bandwidth.

Adding and overseeing a managed account program may not seem like a top priority for an HR team likely stretched thinner than their colleagues at larger companies. If you're in this category, let's at least have a conversation. It's not as onerous or scary as you might think (read my earlier blog post on this topic).

I sometimes talk to people who seem to feel that there's an existential battle brewing between target-date funds (TDFs) and advice, where one must win at the expense of the other. If anyone would be biased, it's probably the Advice Guy, but I don't see it that way. I think that each solution has strong benefits, that single TDF investors (especially in a plan with autofeatures) can achieve financial well-being, and that there will always be a portion of a plan population looking for the additional financial, portfolio, and emotional support, and time, that advice can help provide. My Vanguard colleagues have published some interesting pieces that you might want to check out on how advice and TDFs can offer a spectrum of financial wellness solutions.⁹

Is it possible for a do-it-yourself investor to outperform a TDF or a managed account? Of course! Is it likely that they'll do it consistently over time with an appropriate level of risk for their goals and characteristics? Much less so!

When you look at the five-year results for defined contribution participants, you'll see that the average annual returns are fairly similar across single TDF, managed account, and do-it-yourself populations (9.8%, 10.2%, and 9.7%, respectively).¹⁰

How did I do at summarizing a year's worth of work from Vanguard Strategic Retirement Consulting in one post? Drop me an email and let me know! And perhaps file away these three parting thoughts as you return to your regular activities:

All investing is subject to risk, including the possible loss of the money you invest.

There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date. 

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.