New study suggests managed accounts may reduce impact of volatility on portfolio returns

Research affirms value of professional advice

GREENWOOD VILLAGE, Colo., October 21, 2015 — Participants making use of a managed account product may see long-term portfolio returns in excess of those realized by participants who do not use managed accounts, because they may be less inclined to emotional buying and selling. This is according to a new research report1 examining the account performance of 315,441 participants in 1,783 Empower Retirement defined contribution plans during a five-year period from 2010 to 2015.

The study, “The Haves and the Have-Nots: What is the Potential Value of Managed Accounts?” also found that managed account users enjoy an average annualized rate of return of nearly 2% over those who do not use an investment allocation product (9.77 vs. 7.85%, net of fees).1

For this report, a managed account is defined as a participant’s retirement plan account which is managed by a registered investment advisor. The investment advisor analyzes the funds available in the retirement plan and, using additional information supplied by the participant, produces a portfolio to help the participant meet his or her retirement goals.

“Proper asset allocation is an essential component to maximizing retirement savings. Through a managed account product, participants can receive the help of an investment professional,” said Edmund F. Murphy III, president of Empower. “By doing so, they can take the emotion out of investing and help participants gain the confidence they need that the investments in their retirement plan are properly allocated.”

The study’s analysis shows that the variance in performance consistency between the highest and lowest performing portfolios was smaller for managed account users than for those who did not utilize such a product (3.93 vs. 11.41%, net of fees). The variation in these annualized returns for participants not using a managed account may attribute to underperformance over the five-year period studied, according to the report.1 Evidence in the study suggests that the variance may be an influential aspect of what determines annual average returns over time.1

Earlier this year, research by Empower noted that utilizing professional financial advice appears to be a clear factor in improving the prospects for retirement preparedness. A study of more than 4,000 working Americans indicated that those working with a financial advisor are currently on track to replace 82% of current income in retirement vs. 55% for those without an advisor.2

“There are several behavioral factors to consider as we work with plan sponsors to design optimal retirement plans for plan participants. The original research we are conducting on behalf of clients and participants affirms the value of professional advice,” said Murphy.

The managed accounts report, which is being published this week, offers a historical perspective of product development in the defined contribution space leading to the rise of managed accounts — which are becoming more popular among plan sponsors. A key benefit of managed accounts, the study says, is that as participants age their assets are re-allocated based on personal factors.

“Periodic market shifts are addressed through regularly scheduled asset allocation changes based on an individual’s information and risk tolerance. The goal is to help keep their customized strategy on track,” said the report. “It’s an investment approach that takes emotion out of the equation — and one that may help mitigate investment performance swings over time.”

The study was conducted by Empower in conjunction with its subsidiary Advised Assets Group, LLC, a federally registered investment adviser.

1 Source: Advised Assets Group, LLC. Internal Rate of Return (IROR). Defined Contribution Plans Offering Advisory Services. 04/01/2010-03/31/2015

2 As of 6/30/2015.

3 Source: Empower Retirement, Lifetime Income Score V: Optimism and opportunity, March 2015

The services described are offered by Advised Assets Group, LLC (AAG), a federally registered investment adviser and wholly owned subsidiary of Great-West Life & Annuity Insurance Company. More information can be found at www.adviserinfor.sec.gov. The study was NOT conducted with the intention to assert, indicate or suggest in any way that participants will experience improved investment performance or similar investment returns to those depicted in the study by enrolling in Advisory Services. The investment returns of any specific individual enrolled in Advisory Services are a function of that individual’s personal financial characteristics and retirement goals as shared with AAG, the associated risk/return strategy that the Advisory Services program advises for that person, and the overall market and economic conditions of the sampled periods of time; the returns of which may be higher or lower than the averages shown in this study. Past performance is not indicative of future performance. Portfolio returns are not guaranteed; investments may actually lose money.