Sponsored by Securian Financial
Steve Chappell, AIF®, RPA
National Sales Vice President, Retirement Plans
Securian Financial
1. Can you explain the difference between a Target Date Fund (TDF) and a Retirement Managed Account (RMA)?
First, let’s start with what a target date fund is. A target date fund is a very popular “do-it-for-me solution” in qualified retirement plans. A TDF is typically built with a single mutual fund family. It's what we call a fund-of-funds. It is commonly used in 401(k) plans as the qualified default investment alternative, or QDIA, to help participants make a simple, diversified investment choice. It has been incredibly popular, and it's worked well to provide that diversification.
It is important to note that no matter how robust the target date fund, it is still limited to the fact that it's a single factor investment choice for the participant. Meaning that it's based only on his/her retirement date. In reality, this doesn't take into account any kind of personalization about the participant. And it doesn't take into account any kind risk tolerance or market volatility. A managed account, which is an alternative to a target date fund, offers real and personalized investment solutions based on information and criteria that's unique to the individual.
2. Why do you think an RMA is a better offering?
A financial professional would never just simply ask, "What's your retirement date?" And then say, "Thanks. I have all the information I need." You want to learn more about a person. A managed account offers this type of approach. Similar to what a wealth manager does, but at scale. That is what we are finding buyers are looking for -- a more personalized experience. They want to feel that they are understood.
3. What are some concerns regarding the efficacy of an RMA?
We've seen three major hurdles to the proliferation of managed accounts in retirement plans. The first one has been the price. Typically, the price has been a lot higher than traditional target date funds for a variety of reasons. It's been seen as a profit center in some cases, and low utilization has impacted the price. The second hurdle is that it has required employee engagement on websites.
In the retirement space, individuals typically don't seek out information as much as the industry would like. They want do-it-for-me solutions. It has been a barrier to participants getting more involved in the solution. The third hurdle with managed accounts is that it goes against the value proposition of a financial professional. Historically, financial professionals prefer a situation where they have control over the investment methodology. This has been a stumbling block for the adoption of managed accounts.
4. Why do you think the RMA is the future of retirement?
Financial professionals are beginning to recognize that they can put their intellectual capital into the design of these solutions, and in turn, highlight their own capabilities. Having the financial professional interact with the managed account solution allows for an excellent do-it-for-me solution. We are seeing that more and more often.
There is a trend of retail investors looking for greater personalization due to the awareness that no two investors are the same. For example, you could have two 50-year-olds with drastically different experiences - from their line of work, salary, savings rates, location, etc. They need more personalization to meet their unique circumstances.
There is a lot of data that 401(k) vendors are provided as part of the recordkeeping process, including age, zip code, gender, savings history and more. We can even estimate participants’ Social Security income. There are a variety of data points that can be leveraged to provide a more personalized investment allocation than simply looking at an estimated retirement date. And this can be done without requiring individuals to engage on their own. When you combine these together with the pressures that we've seen on pricing, you are designing a future that's going to be able to provide a better, more personalized outcome for participants.
Given the onset of COVID- 19 and the market volatility, I believe that we will see more and more employers wanting to look at personalized solutions for their employees, knowing that they're going to need help. We don’t have the data yet but may have a clearer picture on adoption rates by the end of 2020.
5. Can you describe Target Pro™ Portfolios and their benefits
Securian Financial has a history of working with model portfolios. We want to apply our past success with model portfolios to our approach to managed accounts - Target Pro Portfolios. Securian has three core philosophies surrounding Target Pro Portfolios. The first is to reduce the cost. The second, minimize engagement. And third, bring financial professionals into the methodology so they have a role.
We formed a relationship with Stadion Money Management to create the asset allocation for Target Pro Portfolios. Securian provides Stadion multiple participant data points like age, gender, zip code, salary information, savings rate, 401(k) balance, etc.
From the data points, Stadion develops customized asset allocations that are unique to each participant, and the allocations are updated if those data points change. For instance, if they roll over funds, get a raise, or change their retirement date. All those things can be updated automatically, and the asset allocation is adjusted accordingly with no involvement from the participant.
We’ve priced Target Pro Portfolios to allow employers and financial professionals to feel comfortable using it as a QDIA or simply have it as the opt-in for participants so they can get more personalization.
When it comes to populating the allocations, financial professionals have the freedom to choose their preferred degree of involvement. Core investments of the plan can be used, or external investment portfolios can be created to help support the use of preferred arrays across multiple clients.
Securian Financial believes that by tying together an attractive price point, minimized employee engagement, as well as utilizing the financial professional’s intellectual capital, Target Pro Portfolios offer a compelling personalized retirement income solution for employees of all ages.
Contact the Securian Financial retirement sales team at 1-877-876-4015 to learn more.
Not all RIAs allow an advisor to perform this fiduciary activity. Please check with your RIA to learn if this is an allowable role at your organization.
Stadion Money Management, LLC (“Stadion”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. More information about Stadion, including fees, can be found in Stadion’s ADV Part 2, which is available free of charge. Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money.
Target Pro Portfolios are based on generally accepted investment principles, leverage employee data already in the plan and are created and maintained by a plan’s Registered Investment Advisor. The assets of each Target Pro Portfolio are held in a group variable annuity contract issued by Minnesota Life Insurance Company as selected by the plan sponsor. Securian Financial provides the administrative record keeping services for the portfolios and charges a fee for this service. Stadion Money Management, LLC. provides the Target Pro allocation services. Stadion Money Management, LLC. is not affiliated with Securian Financial Group or Minnesota Life Insurance Company.
This information is a general communication for informational and educational purposes. The materials and the information are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. If you are seeking investment advice or recommendations, please contact your financial professional.
Securian Financial’s qualified retirement plan products are offered through a group variable annuity contract issued by Minnesota Life Insurance Company.
Securian Financial is the marketing name for Securian Financial Group, Inc., and its affiliates. Minnesota Life Insurance Company is an affiliate of Securian Financial Group, Inc.
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