PlanFacts

Monitoring Managed Accounts: A Fiduciary Duty
 

In our previous newsletters, we discussed the growing demand for managed account services.  As a quick review, a managed account service identifies an investor's risk profile, assigns a portfolio that is suitable to the investor and monitors the portfolio over time, adjusting risk as needed. A service also provides the investor with feedback on whether or not they are on track with meeting their savings goals. This product gives plan participants an efficient way to put their retirement savings on autopilot, complete with high quality professional management and tailored advice.

We have seen a significant increase in the number of plan sponsors using managed accounts as an opt-in service and a growing number who are considering future use. Plan sponsors continue to receive feedback from participants who want direct advice when it comes to their investments. Managed accounts can be a valuable tool for participants with a sophisticated financial situation. A plan sponsor should be aware that the selection and ongoing monitoring of a managed account service is a fiduciary responsibility. 

A comprehensive monitoring process of a managed accounts service will need to include an analysis of several factors:

1. Portfolio Construction

  • Are portfolios efficiently utilizing the investment options on the plan menu?
  • Are the portfolios properly diversified with class and style exposures in line with our own framework?
  • How often does the firm review the asset allocation policy? Is there a tactical component?
  • How often are the portfolios rebalanced? 

2. Risk Management

  • Are portfolios taking appropriate risk at all points along the investment horizon?
  • Is a participant's company stock exposure considered in the risk assignment and portfolio construction process?
  • Are characteristics of other outside assets being factored into the analysis?

3. Manager and Organization Stability

  • Has the firm and management team been stable for the last 12 months?
  • How long has the firm been managing portfolios and assessing investor risk? 
  • What are the average industry experience and tenure of the investment professionals responsible for managing the portfolios? 
  • Are there sufficient resources available to assist in this process? 
  • Have any changes occurred in the firm's ownership, control, or management? 
  • What are the assets under management in the series? 
  • Is the firm subject to any regulatory action, Investigation or litigation by a government agency?

4. Expenses

  • Are service fees reasonable relative to peers? Are service fees reasonable relative to the quality of service?

5. Quality of Participant Communication or Interaction

  • Are participants receiving the guidance necessary to understand their current financial status?
  • What type of outside information are participants contributing to improve the advice?

6. Performance

In order to make an equitable comparison between services that may not all deliver performance data, we sometimes measure performance indirectly by considering expenses as well as the quality and allocations of the underlying holdings. As a company, we have a due diligence process in place for evaluating the menu options utilized by the managed account service. The services that are using a best-in class lineup with reasonable and well-diversified portfolio construction, in tandem with low expenses, will pass our performance monitoring criteria. 

Comparing managed account providers and benchmarking services is a difficult task. Having a prudent process and thorough documentation is essential. We believe that the prudent process we have developed for the evaluation and monitoring of managed account services ensures a high quality analysis of the service offering while minimizing fiduciary liability for plan sponsors. 

Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services.

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Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
Trust and custody services provided by Newport Trust Company, a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc.