The managed account category within the defined contribution space grew dramatically between 2012 and 2017, with total assets increasing from $108 billion to $271.3 billion, according to a new report from Cerulli Associates.
DC managed account assets expanded at a five-year compound annual growth rate of 20%, while the overall DC market experienced a CAGR of nearly 9% for the same period.
"Cerulli anticipates DC managed accounts will continue to exhibit organic growth, while the corporate DC market will largely rely on capital market returns to fuel asset expansion," Jessica Sclafani, a director at Cerulli, said in a statement. "With the broader DC market facing negative net flows, this makes the managed account category attractive."
In 2017, DC managed account assets represented 3.6% of the total $7.6 trillion DC market.
The Cerulli report looks at how managed accounts are positioned relative to broad DC market trends.
"Managed accounts are in line with many of the most pervasive and influential trends shaping the DC market — particularly financial wellness," Sclafani said. "The increasing interest among 401(k) plan sponsors in encouraging and promoting financial wellness aligns with the more individualized and holistic mandate of a managed account."
According to Cerulli, plan sponsors have become more and more aware of how employee financial wellness can affect their company's bottom line, and are offering their workers access to advice.
In addition, the DC market is evolving from its sole focus on accumulation and has begun also to consider decumulation. Cerulli noted that managed accounts could be positioned as an in-plan retirement income solution, which in turn could prompt further 401(k) plan adoption and increase penetration with existing clients.
It said managed accounts may be better equipped to address retirement income issues because they are customized for individual participants and can consider outside assets.
Sclafani noted that Cerulli believes managed accounts may proliferate in DC plans as the move toward participant customization continues, but it will happen primarily outside the qualified default investment alternative space.
"Cerulli sees specific opportunity for managed accounts to increase their penetration with existing DC plan clients, through targeted campaigns to specific cohorts of participants, with emphasis on their position as a holistic solution with access to advice," she said.
