GuidePost - Vol. 3, Issue 3 2007

The GRABot BAG
by Sherrie E. Grabot, CEO

April 2007
And the winner is… not the participant, anyway.

This month we’ve passed a milestone of sorts in the evolution of managed account services for retirement plans. Reading between the lines of a recent article, it appears that the managed accounts business has finally become what every self-respecting financial services segment wants to be: an unabashed horse race for asset totals. Today’s winners are coming down the stretch – and the participant is nowhere in sight.

So much money, so little insight

The 401kWire article that piqued our interest is entitled “Which Managed Account Providers Are Winning The Race?” In case you’re not a subscriber, I’ll summarize: According to researchers at Cerulli Associates, the managed accounts business is up to more than $25 billion. Company A has $X billion, Company B has $Y – and galloping up from behind is Company C, clutching $Z billion and on a pace to take the roses. Or the checkered flag, or whatever.

In a way, it’s nice not to see the usual commentary and footnotes about the nature and history of the business. We’ve come a long way since everything about managed accounts needed a sidebar just to explain the term! And of course, asset numbers matter. The problem is, they don’t tell much of a story about where we’re actually going at such a breakneck pace.

For one thing, a single number doesn’t show whether the book of business is just two or three huge accounts, or a lot of small ones. That makes a difference, both in how managed accounts are implemented (big clients tend to dictate the details), and in looking for trends in adoption. Some accounting sleight-of-hand is also possible: Do you include all participants who are eligible for a managed-account option, or just those who have chosen it? And then there’s the tricky question of what exactly constitutes a managed account program. Different companies can have quite different ideas about what a such a service looks like. It’s not a question of comparing apples and oranges, perhaps, but the apples do come in several distinct flavors.

More importantly, the big numbers don’t show anything about performance. And I don’t mean financial performance, but things like the participation rates of employees and the savings rates of participants. At the beginning, at least, the whole idea of bundled advice and/or managed accounts was to try to meet a very specific set of long-term investment needs: those of the participant. Our performance goals are a lot more complex than simply amassing assets or beating the market, and the real finish line is along way away. How and why we should measure “true” performance is an issue that’s been around for a while. It looks like it’s not going to be resolved anytime soon.

All this means that despite the billions of dollars flowing into the industry, we really aren’t any closer to knowing what effect we’re having on the average American’s prospects for an adequate retirement income. Are we doing any good, or simply doing well?

To be fair, it’s the way of things for the media to seek the Big Story, and for us to follow it with interest. $25 billion does have a certain ring to it. Turning to a different spots analogy, the situation reminds me of the hoopla surrounding the recent NFL draft: a televised festival of rankings, speculation, and cash – part Oscars, part stock exchange, part Superbowl – where nobody ever scores a touchdown.

So on behalf of the managed account industry, thanks for the vote of confidence. It’s good to know we’ve made it to the big time. But the way we see it, the finish line (or goal line, if you will) is still a long way away. Let’s just consider this the first lap.

~~ Sherrie