Managed Accounts Improve Portfolio Performance—For a Price

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In managed accounts (also known as a "separately managed accounts"), individuals are assigned a basket of mutual funds based on their age and risk tolerance, and taking into consideration outside assets they may own and other retirement income they can expect—such as from a defined benefit plan, Social Security and even a spouse's portfolio. Computer models devise a recommended asset allocation plan and automatically manage the portfolio.

Managed accounts are in some ways similar to target-date funds, but they are a more "custom-made" investment solution, closely tailored to an individual's overall financial situation.

Employees, however, should be aware that managed accounts can involve higher fees. In addition to the "expense ratios" (the annual management fees charged by funds held in the account) a "wrap fee" might also be charged by the financial firm or adviser providing the managed account services. A wrap fees can often add 0.30 percent or more on top of the expenses charged by the mutual funds held in the account.

The better returns for managed accounts in some studies often are attributed to the fact that most participants using managed accounts (as opposed to selecting their own investment funds) saw a sharp increase in their stock fund exposure as opposed to safer but lower-performing bond or money market funds.

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