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Complements, not substitutes

Sep 30, 2021
Empower Institute

Together, managed accounts and target date funds improve retirement plan outcomes

Managed accounts and target date funds share similar attributes, such as being multi-asset vehicles that adjust their allocations as participants approach retirement. Through professional management, they both simplify portfolio diversification, help mitigate potential behavior biases and take investor emotions out of the decision-making process. There is evidence showing that investors do not consider the two products to be substitutes. In other words, absent one of these options, participants will not typically choose the other option and may end up self-directing their accounts, which may lead to poorer investment decisions.

An analysis of participants’ target date fund usage when managed accounts are and are not present in retirement plans supports this. Panel A illustrates that participant usage of target date funds remains virtually the same across age groups whether or not a managed account service is offered while usage of managed accounts is fairly consistent across age groups. Panel B goes one step further and shows more participants (mainly from the DIY group) are invested in professionally managed solutions when managed accounts are offered to participants in the plan.

Infographic. Managed accounts. Adoption by age group.

What’s most important to understand from this analysis is that participants do not consider managed accounts to be substitutes for target date funds. In other words, without managed accounts as an option, participants would likely self-direct rather than opt for a target date fund. Download the research paper to learn more about how managed accounts and target date funds work together.

Research paper download. Complements not Substitutes paper

Download Research paper



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IMPORTANT: The projections, or other information generated on the website by the investment analysis tool regarding the likelihood of various investment outcomes, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

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