Edelman Financial Engines, a prominent independent wealth planning and workplace investment advisory firm overseeing over $221 billion in assets for 1.2 million program members, has released new research showcasing the advantages of 401(k) managed accounts in bolstering workers’ retirement preparedness.
Based on two decades of 401(k) managed account data, the report titled “Igniting Growth Through Innovation” provides insights into the development and impact of managed accounts on employees’ retirement savings.
“Once known simply as a 401(k)-asset allocator to enhance retirement readiness, the managed account has evolved into a robust financial planning platform that has transformed how millions of individuals receive professional financial assistance,” stated Kelly O’Donnell, president of employer solutions at Edelman Financial Engines in a statement.
The report discloses that the percentage of 401(k) plan members sharing personal data and goals has doubled in the last ten years, enabling a more personalized experience that better caters to individual needs.
EFE’s analysis revealed that managed account members contribute an average of 9.1 percent of their income to their retirement accounts, compared to 7.8 percent for non-members and 7.4 percent for individuals primarily invested in target date funds.
A significant 47 percent plurality of managed account members are 50 years or older, highlighting the necessity for a tailored approach to retirement planning as employees near retirement age.
In its group retirement enterprise, EFE introduced tools allowing members to input spousal information, estimated retirement expenses, and other sources of retirement income. These enhancements have led to a substantial increase in personalization, with 74 percent of members now providing personal data and preferences, up from 33 percent in 2014.
The report also outlined various behavioral insights and findings on outcomes for managed account members. Encouragingly, 74 percent of program users boosted their savings rate within a year of enrollment, with 41 percent saving over 10 percent of their income.
Furthermore, 97 percent of managed account members are appropriately invested based on their personal goals and risks, in stark contrast to only 25 percent of non-users. Almost all managed account members also hold less than 20 percent of their assets in company stock, while 40 percent of non-members hold over 20 percent of their assets in company stock, posing a diversification risk.
The report underscores the value of advisor access, with 85 percent of members stating that conversations with advisors during market volatility prevented them from making impulsive decisions. Retirement planning and retirement income remain the top subjects discussed with advisors, especially as employees transition into retirement.
“The consistent growth of managed account services and the ongoing demand we’ve witnessed from employers and employees over the past two decades reaffirms the significance of high-touch financial advice and planning solutions within the workplace,” O’Donnell remarked.