Model Portfolio & SMA Strategists Showcase - Flipbook - Page 41
SMAs & MODEL PORTFOLIOS
WHAT ADVISORS SERVING PLAN
SPONSORS NEED TO EVALUATE
The due-diligence framework covered
earlier (p. 22) applies here with some
retirement-specific additions. Fee
structure matters more acutely in this
context, since retirement plan fees
are subject to heightened fiduciary
scrutiny. Provider commitment to
the managed-account business
line matters too, and transparency
into how the underlying allocation
methodology works is a genuine
due-diligence requirement given the
fiduciary standard plan sponsors
operate under.
It’s also worth being precise about
what kind of fiduciary relationship an
advisor is actually entering into with a
plan sponsor, since the two common
Youngest Participants See
the Largest ManagedAccount Benefit
+9.9%
wealth increase for
prior TDF investors,
ages 20–24 at adoption
+22%
wealth increase for prior
DIY investors, ages 20-24
at adoption
Source: Morningstar research on managed
accounts and retirement outcomes
Certain studies report
that managed accounts
can improve participant
outcomes meaningfully,
including a 27% higher
savings rate and 17%
stronger projected
retirement income
compared to target-date
fund users.
structures carry meaningfully different
liability. A 3(21) advisor, named for
the relevant ERISA section, provides
investment recommendations while
the plan sponsor retains final decisionmaking authority and the associated
liability for that decision. A 3(38)
advisor takes on full discretionary
authority for selecting and monitoring
the plan’s investments, including any
managed-account provider, and in
doing so takes on the fiduciary liability
that would otherwise sit with the plan
sponsor directly.
This distinction matters enormously
to a plan sponsor deciding whether
to add a managed-account option. A
sponsor working with a 3(38) advisor
is delegating real liability along with
the decision, while a sponsor working
with a 3(21) advisor is still the one
who has to be comfortable defending
the choice if it’s ever questioned. An
advisor should be explicit with a plan
sponsor about which role they’re
actually serving in, since the sponsor’s
own risk exposure depends directly
on the answer.
WHERE THIS IS HEADED
Two trends are worth flagging for
advisors working in this space.
41
First, alternatives are entering the
conversation. A 2025 executive
order directed federal regulators to
clarify how retirement plan fiduciaries
can incorporate private equity,
private credit, and other alternative
investments into professionally
managed, multi-asset strategies.
Adoption so far has been minimal,
and legal experts remain skeptical that
favorable regulatory guidance alone
will drive rapid broader adoption,
given the fiduciary complexity
alternatives introduce.
Second, and more immediately
consequential, is the shift toward
personalization as a competitive
plan-design feature more broadly, of
which managed accounts are simply
the most mature current expression.
Advisors who understand this space
well are positioned to add real,
demonstrable value in a part of the
industry where “we offer a targetdate fund” is rapidly stopping being a
sufficient answer.
