Adviser managed accounts gaining more momentum

Industry thought leaders have begun to leave the cozy confines of their offices to return to in-person events. The recent run of conferences presents constant reminders that much has changed as a result of the pandemic.

One of the most vivid contrasts between pre-pandemic notions and future direction is in the focus on adviser managed accounts. Over the past two years, the tide has turned from one of cynicism, indifference or dismissal to one of optimism, curiosity and embrace.

There are many potential explanations for the growing embrace of adviser managed accounts, or AMA. The most obvious one is the alignment of interests between the record keeper and retirement plan adviser. For many years, record keepers have partnered with outside organizations such as Morningstar, NextCapital or Stadion to develop sophisticated managed account offerings with potential benefits for participants, but no revenue opportunities for RPAs. The result is woeful underutilization of a powerful tool.

With AMA, the record keepers have figured out how to involve RPAs in the revenue opportunity and the service offering. That led to a mad scramble among RPAs to avoid being left behind. To avoid that fate, RPAs find themselves working through three key due diligence areas.

For starters, what is AMA? It is not simply a model portfolio tool. As our firm’s director of managed account services, Kevin Toledano, tells our RPAs, “AMA is a goals-based solution that includes a recommended savings rate and retirement age, investment advice and ongoing asset management.”

The ambition is not to simply offer a growth portfolio that keeps pace with a growth benchmark. On a much grander scale, AMA seeks to add “account alpha” through various advice levers for a participant’s goals. The record keepers and outside organizations referenced above have done a tremendous job of using data to quantify the value added by AMA.

But more practically, how does an RPA get into the AMA world? Like most good things in life, it takes some work. The aggregators and other industry leaders have largely worked on a one-recordkeeper-at-a-time basis. After some time and effort, an RPA can more efficiently add record keepers to his or her AMA stable, because many are working with a small group of outside organizations that provide much of the AMA chassis. But the starting point is frequently an email or a phone call to a record keeper contact, a series of discovery meetings, the presentation of a business case and a coordinated multi-month process.

With that in mind, RPAs are working through a third area – how to develop enough AMA options to give plan sponsors and participants choices. At the outset, our firm distributed a nationwide AMA request for information to 15 record keepers and six additional organizations. Our goal is to be able to offer AMA with each record keeper partner so the relative availability on only some platforms does not cloud our recommendations and ultimate responsibility to do right by participants.

That RFI process and our subsequent work with resourceful record-keeper and outside partners (Morningstar, NextCapital and Stadion, as referenced above) has revealed a set of conclusions:

1. Adviser managed accounts will bring the next generation of value to our plan participants.

2. The record keepers are excited about AMA because fee compression has taken its toll, and they understand how aligned interests are likely to increase managed account services utilization.

3. The opportunity will require resources, which led us to engage a managed account industry veteran to run our managed account service offerings.

4. There is enough data to support the value proposition to participants and substantiate an RPA’s ability to charge a reasonable fee for the value provided.

At one recent industry conference, multiple aggregators celebrated their organizations’ commitment to AMA. A couple mentioned the inclusion of AMA information in every quarterly review. Even those who historically resisted the additional RPA revenue associated with in-plan money management are now comfortable with it.

This trend is important for RPAs. Our competitors have embraced the value and opportunity. RPAs can follow their lead and position themselves for competition, or retain historic perspectives and risk being left behind.

Matthew Eickman is the national retirement practice leader at Qualified Plan Advisors.