Managed Accounts: Too Pricey For Retirees

Ted

FYI: Managed accounts—in which 401(k) participants hire professionals to invest their retirement assets—are increasingly popular. But are they worth it?
A new report from the U.S. Government Accountability Office concludes that while these accounts can deliver higher returns and lower risk to 401(k) participants, they also charge higher fees that can offset some or all of their advantages.
Regards,
Ted
http://blogs.marketwatch.com/encore/2014/08/05/managed-accounts-too-pricey-for-retirees/tab/print/

Old_Skeet

I try my best to stay away from managed account programs because of the fee that gets taken usually on a quarterly basis from these accounts. Heck, a one percent annual fee adds up over time. On a million dollar account that is $10,000.00 a year in fees and over ten years your are looking at a $100,000.00 paid in fees ... if, the account value were to remain constant at a million dollars.

Most people with a million invested are sharp enough folks to figure this out and a good number I believe stay away from managed accounts. Although I use a broker I opted away from their firms managed account program. However, I believe the firms seem to keep pitching them heavily because of the fees they generate.

Curently, what I indirectly pay to the broker comes in the form of 12b-1 fees which are paid by the fund company. And, I know of some on the board balk at paying a commission to the advisor ... but, once paid generally one can usually move around within that fund company to other funds commission free via nav exchanges. And, generally, the commissions on the income funds are less than those for the equity funds. With this, one buys into a fixed income product and usually after ninty days or so they are free to move to another fund ... commission free ... within that fund family through the nav exchange program. Therefore, if one wishes to be shrewd they can indeed manage the amount of commissions paid by using nav exchange purchase programs.

Just something to think on.

Old Skeet

Sven

We have these services available in our 401(K). I would stay the hell out of them. They want in excess of 1% of the total asset. From what I have been tracking since 2006, they DO NOT provide better returns in both up and down cycles. No improved downside protection - forget it.
It is much better to take the time and learn to construct a well balanced and diversified portfolio.

jerry

I consider myself a decent investor but note that most years I underperform the appropriate target date fund though as compensation my risk is somewhat lower as I use a stable income fund paying 2% rather than a bond fund and I suppose I have more fun..Given the wide availability of target funds it is unlikely a managed account (1% OR MORE EXTRA FEE) is unlikely to be a good purchase

rjb112

From the article:

"Do these services deliver higher returns? According to reports issued by some managed account providers, including Morningstar and Financial Engines, the accounts deliver a performance edge of more than 3 percentage points a year. But the GAO report, citing data from 401(k) record-keeper Vanguard, found that “published returns for managed account participants” were “generally less than or equal to the returns of” other popular 401(k) investments, including target date funds or balanced funds, which invest in a mix of stocks and bonds."

Hmmm.....quite a discrepancy.

Crash

"General Accountability Office." If only fancier words actually produced better results. I still remember the "General Accounting Office." Eh?

Ya, there is no way I'd go near such a "managed" animal. Is that the same thing--- come to think of it--- as a "wrap" account? Even so, and either way.....