Will Personalized Professional Help Really Make a Difference in My 401(k) Performance?
Not taking full advantage of your 401(k) – whether it’s because you don’t understand it or you’re taking a set-it-and-forget-it approach – may have serious consequences at retirement.
If you’re concerned your 401(k) is not going in the direction you’d like or you want the potential for greater returns on your hard-earned money, personalized professional account management may be right for you.
Not only can personalized professional account management potentially help increase returns, but it may also lessen stress about your financial future and help you make better financial decisions.
Even if you understand how a 401(k) works and have basic investment knowledge, professional 401(k) account management may help you more than you think. Keep reading to learn the advantages of personalized professional account management.
Personalized Professional Account Management Defined
Before we dive in, it’s important to understand the difference between managed accounts and personalized professional managed accounts.
Managed accounts: An investment service which selects a group of funds and packages them in an investment portfolio for you. With managed accounts (think target date funds), there is little personalization, many only rebalance annually, and personal risk is rarely considered. Funds are often set up so they lessen equity exposure as you age.
Personalized professional managed accounts: Your 401(k) is personally managed by a person or team. Personalization occurs using the options that are offered, and a personalized strategy – tailored to your unique situation and risk tolerance – is designed using the full menu of investment options in your 401(k) plan. When you have a professional managing your 401(k), the focus is on the outcome, not a cookie-cutter approach to investing based on your retirement date.
Here’s a quick analogy to further drive home the point: Let’s say you have a new car with all the bells and whistles.
With a managed account, someone else is driving the car their way.
With personalized professional account management, your driver drives the car your way, freeing you up to do other things. You don’t have to focus on the traffic, road obstacles, or detours. You only need to focus on the destination.
If you have never been taught how to choose your own investments and / or simply don’t have the time to do it, hiring someone to help may have big advantages.
With personalized professional account management, you pay a fee to have your 401(k) managed by someone who selects funds and builds a specific portfolio and asset allocation based on your unique needs and goals.
In addition, the investment manager has a fiduciary duty to act in your best interest — meaning, they have a contractual duty to do their best in choosing the most appropriate investments to match your desired asset allocation. In addition, they don’t receive commissions either, so their judgements can remain objective.
Is Your Goal to Have the Best Returns Possible?
Personalized professional account management may make a difference in how much money you earn and how much you keep.
Studies show that getting professional account management with your 401(k) may significantly increase investment returns.
This is in part because there is a level of customization with personalized professionally managed 401(k) accounts.
Instead of a cookie-cutter, one-size-fits all approach that target date funds offer, personalized professional account management investment positions are selected based on your unique needs, goals, risk tolerance, and financial situation.
In addition, asset allocations will be adjusted as you go through life events and your risk level changes.
In a 2019 study titled Advisor’s Alpha, The Vanguard Fund Group, Inc., reported a 3% average increase in the value of portfolios of clients who had their account professionally managed.¹ The study also noted that the increase depended on the client’s situation and might vary from year to year.
David Blanchett, Head of Retirement, CFP, CFA of Morningstar reported that participants that received expert guidance had as much as 40% more income during retirement versus those who received no Help at all.²
Aon Hewitt and Financial Engines conducted a study from 2006 to 2012 comparing the returns of investors who sought help in the form of online sources or professionally managed accounts to those who managed their 401(k)s themselves.
The study examined the 401(k) investing behavior of 723,000 workers at 14 large U.S. employers.
It showed that people who received professional account management earned higher median annual returns than those who invested alone.
In fact, participants who had their assets managed by professionals saw an average of 3.32% (net of fees) more in returns annually than those who managed their own accounts.³
If 3% doesn’t seem like a lot, take a look at the table below, and you’ll see that 3% over time can make a big impact on your 401(k) balance.
The above chart does not include management of employer contributions or future salary deferrals. With those included, you can see that the difference has the potential to be much larger.
Personalized Professional Account Management May Reduce Fees
Fees hidden within your 401(k) can take away from your investment returns and leave you with less cash in retirement.
Yet, 92% of 401(k) investors have no idea what they are paying in fees.⁴
Unfortunately, figuring out what your fees are is often easier said than done. Personalized professional 401(k) account management can help you identify the fees inside your 401(k) and help you know if you’re paying too much.
In addition to managing your investments and quarterly rebalancing your 401(k), personalized professional account management may also help you stay on course to meet your retirement goals.
During volatile markets, human emotion often causes investors to make poor decisions – especially for those who are not knowledgeable and skilled in investing. Even then, emotion can get the best of us and cause us to make poor financial decisions in the heat of the moment.
In uncertain times, having your account professionally managed helps take the emotion out of financial decisions because you have a professional there to make decisions based on market and economic trends and data.
Grow and Protect Your 401(k)
401(k) Maneuver wants to help you get on the right track with your 401(k) account and help you grow your account more in line with your goals.
We provide independent, personalized professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that harm your account performance.
With 401(k) Maneuver, there’s no need for FaceTime meetings. And you don’t even have to move your account – you can keep it right where it is.
All you need to do is to connect your account to our secure platform, and we manage your account for you.
Watch this short video on how it works and how 401(k) Maneuver may help you increase your account performance.
Have questions about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.
- David Blanchet, Head of Retirement, CFP, CFA, Morningstar 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”
- Over 90% of Americans make the 401(k) Mistake, Maurie Backman, Motley Fool