More than half of the 14,194 active participants in a two-year-old program offered by retirement specialist Invesmart Inc., have opted for a $10 per month service in which the company's adviser arm manages their defined contribution account for them.
The buy-in rate of 57% illustrates the high demand among defined contribution plan participants for help in preparing for retirement, according to Invesmart, which is a unit of Portland, Ore.-based StanCorp Financial Group.
The managed account program responds to retirement savers' "dilemma of how much do I save and where do I put the money," said K.C. Cannon, a vice president and Invesmart's national sales manager.
It is a dilemma that other retirement services companies are responding to as well. Financial Engines in Palo Alto, Calif., rolled out a managed account program two years ago and has gathered $5 billion of assets from 115,000 participants in 65 plans.
From 12% to 15% of employees opt in to the managed account program within a year when their companies give them that choice, said Christopher Jones, Financial Engines' executive vice president of investment management and chief investment officer.
At companies that put employees in the managed account program unless they opt out, 60% to 70% choose to stay in, he said.
Lauren Bender, the manager of retail securities and investments at the research firm Celent in Boston, said one reason managed accounts are catching on is that amateur investors who thrived during the dot-com boom were humbled by the reversal that ensued.
"The market crash taught people that this is a full-time job," she said.
Invesmart's program, called RightPath, has been distributed through registered investment advisers as well as the trust departments of 20 banks around the country that do not have proprietary retirement plan platforms. Invesmart's acquisition by StanCorp in June means the product will also be available through benefits brokers.
RightPath has 199 plans with $756 million of assets and 20,000 participants. Another 52 that are in the process of converting will bring the participant total to 25,000 and assets to $934 million, according to Invesmart.
Participants in RightPath are free to manage their own portfolios, for which Invesmart handles the administration as well as fund selection and monitoring. Invesmart offers only investments from outside providers.
The company also offers its services as an investment adviser: Clients can choose one of 10 portfolios that are managed by Invesmart. The portfolios are tailored to the participant's age, risk tolerance, and other factors; they range in risk level from one with no equities to one with nothing but equities.
RightPath has been well-received among the small-business clients served by Irwin Union Bank and Trust Co. in Columbus, Ind., said Brenda Haybarker, a vice president and trust officer. At one 30-employee firm, 80% to 90% of plan participants use the managed account alternative, she said, and at a 100-employee business, 55% do.
Many workers feel they lack the sophistication to make the best choices, she said, and others simply do not want to invest the time to carefully pick investments and then monitor them.
"A lot of people say, 'You know what? I don't have time to mess with it - let me put it on autopilot,'" Ms. Haybarker said.
Plan sponsors are likely to become more interested in investing advice thanks to the Pension Protection Act, which President Bush signed Thursday. Its provisions encourage companies to automatically enroll employees in their 401(k) programs unless they opt out. The law also reduces liability for plan sponsors that offer investment advice to participants.
Invesmart is already offering advice and more, but the law could increase interest in the subject, said Ms. Haybarker. "It may make plan sponsors more willing to offer advice," she said. "It may help us in selling RightPath more."
Denise Valentine, a senior analyst at Celent, said a company like Invesmart has a "very good opportunity in this marketplace."
But credibility will be important to plan sponsors because their reputations are at risk, she said. "Who is Invesmart?" she said. "Branding is going to be really very important."
Invesmart has 81 registered investment advisers, who handle everything from investment research to sales and advising plan participants over the phone.
The company has had success driving home the need for participants to raise their contribution levels, Mr. Cannon said. Of employees enrolling in RightPath from another plan, 45% have increased their contribution levels. At enrollment meetings, participants are given personalized "snapshots" that show any gap between their contribution levels and retirement savings needs.
Company representatives drum home "the message of 'get engaged in the process, Mr. plan participant,' " said Mr. Cannon. "The head-in-the sand mentality is not a great investment strategy."
