Can managed accounts outperform their own fees?

Core Insights - Managed accounts are increasingly central to modern 401(k) plans, with access rising from 17% in 2014 to 42% in 2023, indicating a significant trend towards personalized retirement solutions [1] - New research from Morningstar's Center for Retirement & Policy Studies evaluates the effectiveness of managed accounts compared to target-date funds (TDFs) and self-directed portfolios [2] Performance Metrics - Adoption of managed accounts results in a 7.7% increase in the wealth-to-salary ratio at age 65 for typical investors, suggesting better retirement readiness compared to those using TDFs or self-directed portfolios [3] - For TDF investors, switching to managed accounts yields a 5.9% increase in projected retirement wealth, while DIY investors experience a more substantial 11.4% increase [5] Behavioral Insights - The disparity in benefits between DIY and TDF investors is attributed to the broader range of asset allocations among DIY investors, leading to greater variability in risk exposure [6] - Managed account users tend to save more consistently than their peers, driven by personalized recommendations that effectively motivate savings behavior [7]