At a glance
- Surz made the argument in a 401(k) Specialist column published Oct. 28.
- Participants defaulted into QDIA managed accounts never talk to anyone, he wrote, so the accounts run on recordkeeper wealth data.
- Real personalization, he argued, pairs that capacity with discovery of risk tolerance, the willingness to take risk.
About $15 trillion sits in the fully managed accounts Ron Surz treats as the real thing, against less than $1 trillion in the managed-account version of a qualified default investment alternative.
He wants plan fiduciaries to see the gap and to ask which one they are buying. Surz made the argument in a 401(k) Specialist column published Oct. 28.
Managed-account money dwarfs the QDIA version
Assets in fully managed accounts vs QDIA managed accounts, as cited by Surz
Fully managed accounts
$15T
QDIA managed accounts
<$1T
QDIA managed accounts hold less than a fifteenth of the money in fully managed accounts.
Participants defaulted into QDIA managed accounts never talk to anyone, he wrote, so the accounts run on recordkeeper wealth data.
That data reveals risk capacity, the ability to take risk, without any participant engagement. Real personalization, he argued, pairs that capacity with discovery of risk tolerance, the willingness to take risk.
QDIA managed accounts use the first without the second, and he calls a managed account sold as personalization a fake.
What a committee asks the recordkeeper
Sponsors comparing a managed-account QDIA with an off-the-shelf target date fund can ask the recordkeeper which data feeds the model, whether participants answer any questionnaire, and how the service is described in QDIA materials.
Those answers change the comparison the committee puts on paper.
Surz puts most of the roughly 70 million Baby Boomers in the Retirement Risk Zone, when investment losses can ruin the rest of life.
Surveys show target date participants want protection as retirement approaches and believe they already have it, he wrote. Surz argues the belief and the exposure do not match.
The valuation half of the case
Surz cites a market price/earnings ratio of 45 and writes that in past periods when the ratio reached that level, subsequent 10-year performance was a loss every time.
He says a composite of expensiveness measures is more than three standard deviations above the mean, a level he calls highly statistically significant. He concedes artificial intelligence might save the decade and points to similarities with burn rates during the dot-com bubble.
Surz also flags personalized target date accounts coming to market, which he describes as essentially the same as the managed-account version except for explicit recognition of an underlying lifetime investing glidepath.
That is the product shape sponsors will be shown next, and it carries the same question about whose data drive the personalization.
Reported by the Plans & Sponsors desk from 401(k) Specialist. Published . Corrections