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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

 

 

RO1853463

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Empowering America’s Financial Journey

Empowering America’s Financial Journey carefully analyzes the behavior of approximately 4 million active defined contribution participants.

Carefully consider the investment option’s objectives, risks, fees and expenses. Contact Empower Retirement for a prospectus, summary prospectus for SEC-registered products or disclosure document for unregistered products, if available, containing this information. Read each carefully before investing.

Securities, when presented, are offered and/or distributed by GWFS Equities, Inc., Member FINRA/SIPC. GWFS is an affiliate of Empower Retirement, LLC; Great-West Funds, Inc.; and registered investment adviser, Advised Assets Group, LLC. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.

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.

Investing involves risk, including possible loss of principal.

Insurance products are issued by or offered through Great-West Life & Annuity Insurance Company, Corporate Headquarters: Greenwood Village, CO; or in New York, by Great-West Life & Annuity Insurance Company of New York, Home Office: New York, NY. Guarantees are subject to the terms and conditions of the contract and the claims-paying ability of the insurer.

The managed account service is part of the Empower Retirement Advisory Services suite of services offered by Advised Assets Group, LLC, a registered investment adviser.

The Empower Institute is a research group within Empower Retirement, LLC.

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