Author: Paul A. Carl, CHSA, CPFA^™Vice President, Retirement Plan Consulting, Registered Representative

For the past several weeks, the Retirement Meditations have been exploring the more popular options available as Qualified Default Investment Alternatives (QDIAs) in participant-directed retirement plans. These have included the traditional balanced fund as well as asset allocation funds that are risk-based and age-based. Several Retirement Meditations also referenced managed models. 

So, what are “managed models?”

Managed models are portfolios of investments actively managed by a professional money manager. They are generally risk-based but some also have glide-paths. In a participant-directed plan, the managed models often consist of only those investment options offered to the participants. This is not exclusive, however. Some managers incorporate investment funds that are not part of the core investment lineup in creating their models. Often these investments may be a bit more sophisticated than should be available to the retirement plan participant.

Unless there is a glide-path associated with the managed model, they are primarily designed for participants who prefer the “do-it-for-me” approach to investing retirement assets. Participants choosing managed models are, in effect, hiring professional money management for their retirement assets. The management comes with a price that is most often some percentage of the participant’s account value. That price, by the way, is over and above the traditional fees associated with the plan and its core investments. These fees can get quite expensive.

While managed models are professionally managed, they may be automated to an extent through a “robo-advisor” program. Generally, “robo-advisor” programs rely on asset allocation techniques built through some sophisticated software technology and methodology. Other managed models are managed by an investment advisor who is managing the model portfolios in a more traditional manner.

Regardless, managed models are gaining in popularity as more and more questions arise regarding the “simplicity” of target date funds and other asset allocated investments.

Does your plan offer managed models?

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