Vestwell adding first managed account option to its 401(k) business

Vestwell is preparing the first managed-account option for its digital 401(k) record-keeping service, a product that uses Franklin Templeton’s Goals Optimization Engine, the companies announced Wednesday.

The forthcoming managed-account service, which is designed to be available as a default investment option, will compete aggressively on cost, Vestwell CEO Aaron Schumm said.

The service is open architecture, meaning that advisers can use their own lineups of funds that are on plan menus. It is expected to become available during the first half of 2021.

The managed-account service will stand out in the marketplace because it will be embedded in Vestwell’s technology, rather than located away from a record keeper and within an investment manager’s system, Schumm said. That detail is what will help the firm compete on cost.

“We own the technology. We’re building this directly into the Vestwell employee experience,” he said. “It’s already fully baked in. It doesn’t become an extra step for someone.”

Managed-account services can carry fees as high as 60 basis points for small retirement plans, though the Vestwell option can be as low as a third of that amount, depending on the structure of a plan, according to the firm.

Franklin Templeton, which is a minority investor in Vestwell, is already a managed-account provider, though the arrangement with Vestwell is exclusive for the small-plan market, the companies noted.

At an industry meeting in November, Franklin CEO Jenny Johnson cited managed accounts as a big component of DC plans in the future, specifically for retirement income. Managed accounts could include annuity components and have the benefit of potentially using private equity or other asset classes that are not usually stand-alone investment options on 401(k) menus, Johnson said at the time.

Franklin Templeton has "a legacy dating back to the late 1970s" in the managed accounts business and had $103 billion in retail separately managed account assets as of Sept. 30, according to a company spokesperson.

Vestwell could consider adding managed-account services from other providers, though it has no immediate plans to do so, Schumm said.

“We just want to be the engine to help power the retirement plan space,” he said. “It’s about creating an experience that’s the best fit for the employees.”

The forthcoming option will be flexible in allowing employers to decide how to use managed accounts — if, for example, they decide to shift employees from target-date funds and into managed accounts at a given age. Such a model is used by Empower Retirement’s Dynamic Retirement Manager for that record keeper’s plan clients.

Vestwell has about 5,000 retirement plans on its record-keeping system, representing about 150,000 participants, Schumm said.