Managed Accounts Help in Down Markets, but There’s More to It

Let’s get personal.

It’s been two decades since the Pension Protection Act began allowing managed accounts to serve as a default investment in 401(k) plans. Retirement researchers have been analyzing the pros and cons ever since, including Jack VanDerhei, director of retirement studies for the Morningstar Center for Retirement & Policy Studies, who just published his fourth paper of the year about managed accounts. The new study asks two questions that are easily conflated: Does a managed account perform better in a bad market, and does its relative value increase as market outcomes become more adverse? The answer to both is yes, though there are some important caveats. 

“The real issue is not whether managed accounts provide downside protection in the abstract, but where and relative to what alternative do they have the greatest opportunity to improve outcomes,” VanDerhei told Retirement Upside. 

Managed Account Value 

There’s no single right answer to what vehicle people should use to save for retirement, his research has concluded. Still, managed accounts bring a lot to the table, per the 2026 series:

• The first study found a meaningful increase in the age-65 median wealth-to-salary ratio from using a managed account, even after a 40-basis-point management fee. 
• The second examined why that value varies across retirement plans. Managed accounts proved more valuable when the plans didn’t automatically increase workers’ contribution rates. 
• The third study found that managed-account use was generally associated with higher contributions. 

“The incremental value of a managed account depends substantially on what the [saver] would otherwise be doing,” VanDerhei said. “Someone already invested in an appropriate target-date fund is in a very different position from someone managing a poorly diversified portfolio on their own.”

Still, both groups benefit on average from managed account usage, according to the new report, which shows hypothetical participants who start using managed accounts in their early 20s reach retirement with 9.9% more wealth than target-date fund investors and 22% more than those with self-directed portfolios.

Still, managed accounts aren’t exactly in great demand. About 44% of retirement plans include a professionally managed account as an investment vehicle in 2026, up from 38% in 2024, according to the Plansponsor Defined Contribution Benchmarking Survey. 

Death of DIY? Managed account users tend to accumulate more wealth than DIY retirement investors, but VanDerhei is hesitant to draw broad conclusions. 

“Our results do not establish that all DIY investors are making poor investment decisions,” he said. “Some participants are perfectly capable of constructing and maintaining appropriate portfolios. However, the findings do suggest that there can be substantial advantages to professionally managed investment approaches, particularly when compared with the investment and contribution patterns associated with self-directed participants.”