Welcome to the Fiduciary U™ podcast. My guest today is Todd Lacey, Chief Business Development Officer at Stadion an investment management firm that provides custom managed account solutions to retirement plan advisors, plan sponsors and participants. Todd has worked in a variety of different roles within the retirement industry for over 20 years which gives him a really unique perspective and vantage point, unlike just about anyone else I know.
He’s been a retirement plan wholesaler, owned his own independent 401(k) advisory firm, The (k)larity Group, held high level executive management positions at Transamerica and now is leading growth initiatives at Stadion. Todd and I have been good friends for nearly 15 years and in fact, my firm, Greenspring Advisors, bought the The (k)larity Group when he decided to leave the advisory industry and go back to Transamerica.
On today’s episode, Todd and I have a wide ranging discussion. We talk about the changes that have taken place in the retirement industry over the past 20+ years and why he decided to leave the advisory industry after building a really successful firm which is not something people typically do. But we spend most of our time discussing managed accounts. How these solutions have evolved over time and why their adoption has lagged traditional target date funds over the past 15 years. We also discuss how managed accounts can deliver a more personalized investment experience that people have come to expect in other areas of their life. We also explore why certain recordkeepers and plan providers may be friendly or unfriendly to providing 3rd party managed account solutions depending on whether they have competing offerings, and some of the technology challenges to delivering managed accounts that create a high barrier to entry.
And be sure to listen to the end where Todd shares his thoughts on where the retirement industry headed over the next 5-10 years and the role of managed accounts as well as his single best piece of advice for making ERISA fiduciaries smarter. And so with that introduction, I hope you enjoy this episode of the Fiduciary U™ podcast with Todd Lacey from Stadion.
“I am all about life experiences and business experiences, and if that means changing either my role or evolving my role with an organization—or going to another organization to get more experience—that’s fulfilling to me and I enjoy that.” – Todd Lacey
“It’s not about the quality of the investments. It’s more about the behavioral impact.” – Todd Lacey
“Personalization makes sense and is part of the future.” – Todd Lacey
Josh Itzoe: Okay, Todd Lacey, welcome to The Fiduciary U™ Podcast. I am super excited to have you on today. I think this podcast is all about making ERISA fiduciaries smarter. I think you have a lot of great insights and experiences and wisdom that you'll be able to bring to bear throughout this discussion. So really excited and thanks for being a guest.
Todd Lacey: Yeah, thanks for having me, Josh.
Josh Itzoe: Awesome. Awesome. So, one of the things I think about when I think about you and I think about your career, is that you have one of the most unique vantage points in the industry of anybody I really know, just based on having done a lot of different roles. You've seen, outside of being an auditor and an ERISA attorney, you've seen really just business from all different sides. So almost 25 years ago, you and I used to be the young guys when we first met almost 15 years ago. We're definitely not the young guys anymore, but right out of school, late '90s, you went to work for Transamerica as a wholesaler, if I have that right, and then you move to become director of retirement plan consulting for an advisory firm, and then you went and founded your own advisory firm, the (k)larity Group, which you did for a number of years, and then actually sold to our firm, based on the relationship we developed years and years ago.
You went to take a high level executive role doing a number of different things over several years at Transamerica, everything from distribution and partnerships to corporate strategy for the retirement group. Now you're at Stadion retirement really focused on the managed account world. So did I get that progression correct?
Todd Lacey: Nailed it. That was perfect.
Josh Itzoe: Well, the fact that you have all those different perspectives, I think gives you, like I said, a great vantage point. So, how have you seen the industry evolve over the last 20 or 25 years? And what are some of the things that stick out most in your mind when you think about where we've come from since you started in the business?
Todd Lacey: Yeah, thanks Josh. I think about 20 plus years ago, it was a very, very different industry. I think fees were much less transparent I think there were very few advisors that really specialized in this space, particularly downmarket. You had your consultants and firms that served the large and jumbo market, but bringing that expertise downmarket, that really didn't happen probably until maybe 15 ish years ago.
So at least my early experience wholesaling right out of college, I was working with advisers who did mostly benefits insurance, and they sort of tinkered in 401k. So as a wholesaler, our job was to be the 401k expert, kind of be their 401k arm, but that also meant they were selling our product and not really doing a lot of due diligence or benchmarking on multiple record-keeping options. Fees were way less transparent, I would argue much higher back then. I also think our participant approach back then was very different. We still had the optimistic perspective that if we just taught people and taught people and taught people and talk to them about mutual funds and the difference between large cap growth and small cap growth, they would then make good investment decisions. I think we've all learned over the years that participants have good intentions, but they don't learn about these things in school generally.
So their only education is the one hour meeting that we do in the lunch room over pizza, talking about mutual funds and tax deferred compounding. so I think an evolution of going from trying to educate everyone to advising them and doing it for them, ultimately, which I know we'll get to with managed accounts, has been probably one of the biggest things that I've seen evolve. So everything from plan design has changed significantly, again do it for people through auto enrollment, auto escalation, more so than expecting people to save more on their own.
As I mentioned, advisors, like yourselves at Greenspring now bring a huge amount of value to plan sponsors and participants, I think much more than was the case again, 20 years ago. so I think clients are getting more value from advisors generally. I think they're getting more transparency. I think the fee levels have gotten to be more reasonable and I think participants are being served better, probably than they were years ago, which all of that put together I think is been a good thing net net for the ultimate mission that we all have, which is trying to put people in a position to be able to stop working, to be able to retire one day. So I think the evolution has actually been really positive across the board for most constituents in business and again, ultimately sponsors and participants.
Josh Itzoe: Right, right. Yeah. There's been just tectonic shifts even from when we first started and met each other things are a lot different, a lot of behavioral economics factoring in to things like plan design and even investing and whatnot. We'll get into that, I think with talking about managed accounts. So you started as a wholesaler, you went to work for an advisory firm and then ultimately started the (k)larity Group which you really built into certainly a boutique firm, but really well-known within the industry, a really good reputation. What made you want to get from the side of being a wholesaler, supporting advisors to actually get into the advisory business yourself?
Todd Lacey: It's a great question. I actually had an advisor ask me ... it was an advisor I was wholesaling with or to, came to me and said, "Could you wholesale multiple products? Would you represent beyond just Transamerica, other firms?" I said, "No, that's not the model." He said, "Well, would you be interested maybe in coming on board and being our retirement arm?" Again, they were a great asset manager or more of a wealth manager, private wealth firm, but they didn't have a lot of 401k expertise.
So, they were using me for that and so they offered me that opportunity and I was at the point in my career where I had worked about five or six years as a wholesaler, great experience, but I really wanted to go front lines. I wanted to work directly with sponsors and participants. I wanted to objectively serve them, not just represent one product. As you've known, I think about me, is I do like to experience different sides of this business to really, really understand it. I felt like there was a lot of value to be added at that time as an advisor. Because again, I was working with a lot of folks that didn't really know what they were doing. I felt like if I could bring that expertise to the advisor space, could add a lot of value and would be a differentiator. So that's really how I decided to make that jump.
Josh Itzoe: I like to affectionately you as having professional ADD.
Todd Lacey: You and my wife.
Josh Itzoe: Every handful of years, it's all in the ... I'm wired in a similar way, which is why we've always gotten along so well, I think. So you went to do that, you went to work for this advisory firm, but then ultimately decided to strike off on your own and start the (k)larity Group. What was the impetus for you doing that? Then what are some of maybe the learnings? Again, this is my goal for this podcast is to teach and educate. What were maybe some of the learnings that you experienced as an advisor, maybe the biggest lessons you learned and then maybe some of the mistakes that you made, that you wish you would have potentially avoided?
Todd Lacey: Yeah, so the reason I went out on my own, I think is probably similar to why a lot of folks in many industries just want to venture out on their own, is I wanted to build something virtually from scratch, to sort of see how I could do. I definitely had a vision of the way clients and participants should be served and I felt like I could best execute on that completely on my own, clean slate, everything from designing the brand, the website, the services, the contracts, really everything, build it the way I felt like it really needed to be done and then see what happens.
Like you said, we were fortunate to have some success. Certainly it wasn't perfect. I still needed a lot of experience. I mean, at that point I was eight years into my working life. So now I'm 21 years into my working life, so I feel like I would have loved to know then what I know now. But I think one of the things I learned was a lot of plan sponsors, they just have more on their plate than the 401k plan. When you work in this industry full time, like you and I do, sometimes we make the assumption that this is maybe a bigger priority than it is. We know being a responsible fiduciary is important, educating and preparing your employees is important. All those things are important, but that's one small segment of running a business, running a plumbing business, or an accounting firm and particularly when you're dealing with HR professionals, who I have incredible admiration for because of the hats they have to wear and the workload they have to absorb is unbelievable.
So instead of going in and brain dumping everything on to those folks, I learned you have to simplify it and take as much off of them as you can. I think you guys do an unbelievable job with that, best of the business that I've seen. I had to pull back a little bit, instead of believing that this was as important to every one of my clients. I had to say, "This is important, but let me show you how I can actually make your life a lot easier without sacrificing any of the core responsibilities that you have."
So that's something that took a while for me to learn, but as I did that and then evolved our services to a point where it was pretty streamlined and we could confidently go into a prospective client and say, "Here's what we've done other places, here's how we make your life easier. Here's where we cover all the bases and here's that package we can now bring to you." So hope that makes sense?
Josh Itzoe: It does. It does. Yeah, it's funny, the retirement plan, fiduciary responsibility, helping make good decisions for participants is critically important, but like you said, I think the urgency and you own a business and ran a business and I do as well. I've never met a business owner or a company who said, "You know, the most important thing that we do as a company is run and have great retirement plan committees. If we don't do that, just the wheels of commerce will grind to a halt within our company." So I think that's an interesting perspective that you have in terms of covering all the bases, but also, in an era when we're all having to do and HR and finance and everybody's having to do more, the more that you can take off a plan sponsor's plate, the more that can be the go-to fixer, if you will. That's something I think that's really valuable to a lot of plans sponsors, the value.
So, you built this great practice that we were fortunate. I remember it was, I think in December of 2010, it was like 11 o'clock at night. I was sitting on the couch watching TV, and I get a text from you. You say, "Do you want to buy my firm?" I say, "Give me a call." I know that you had been talking and because we had discussed it just in terms of ... and had actually met a few times, you and myself, and Pat Collins, the other co-founder of Greenspring, we met outside of, I think DC one time when you were up for a conference and just kicked around the ideas of would it makes sense to merge our firms at some point.
We decided not to, but you and I stayed in touch and we would have those biweekly calls, I think, around best practices to mirror our service models, if you will. But you get to a point, you talk to a big advisory firm about potentially going to work for them in a more strategic role and decided not to do that. It had been put on hold for a bit and then I get this text message from you and you call me and you say, "Hey, I have this chance to go work with Transamerica and this really high level job, you want to buy my firm? I want to make sure that my clients and my people wind up in a good place." Within a couple of weeks, we'd hammered out a deal and within a couple of months I'd met all your clients.
I remember the first time we went ... we did a little road show. I came in with you and with Stephanie Hunt and you basically said, "Hey, this guy's buying my firm. I'm going to let him do all the talking." I was terrified to talk to all your clients down there, which ultimately became our clients. But that was an interesting evolution. You don't see many advisors that build the type of firm that you had with the level of success and then say, "Yeah, I'm going to go do something else." So what attracted you to that role? I'd love to find out, what did you take from being an advisor that really helped you at Transamerica? Because you had a really big job there over the number of years that you worked for them.
Todd Lacey: It's a great question and probably to no surprise, I get this one a lot because it was ... Most folks looked at me and said, "What in the world are you doing?" Because it's the opposite of what generally you see in the industry, which is you wholesale and you work for a provider or an asset manager and then you get an opportunity to jump to the advisor side, which is a wonderful segment of the business. I mean, I look at the success that you guys have had and built a really great firm and it's a great lifestyle. It's a noble cause. I mean, it's really an admirable part of the business and an attractive place to be. Like you, I was still fairly young and I felt like I still needed more experience in the industry. I had never worked as a senior executive at a big company. I felt like, am going to have this firm for the next 30 years? And I don't know that if I have it for 30 years really going to understand this business and see it from all sides.
So also at Transamerica, I had a lot of great relationships. My mentor, who is still my mentor and close friend, Kent Callahan, been promoted and was really running the retirement business and beyond and then a number of other friends there. So the opportunity to go back, work with people that I really cared about and felt like I could learn a lot from was really attractive, specific to Transamerica. I'm not sure I would have gone to any record keeper, but that was unique to that opportunity and to work with Kent again, was something I felt like I really wanted to do and needed to do.
So made that change, I would say the biggest thing I was able to bring with me, that I think Transamerica hoped would be valuable was the advisor experience. As a record keeper, you're selling through advisors and very few people at a record keeper actually have been an advisor. At that time, Transamerica was not selling through specialists and RIAs and wanting to develop that channel and felt like, because I had lived in that world, I could bring that to the table. So I was able to, heading up business development, to really help grow that segment of their business, which as we know today, if you're a record keeper and you don't serve that population, it's tougher to grow because there are more and more specialists that have hit the market, developed a good service model. So you really, again, as a record keeper, asset manager, you need to know that channel and be focused on it at some level. So I think that's really what I was able to bring to the table. Then, like you said, my role expanded and changed over time but that was maybe the core mission that I had when I first went over there.
Josh Itzoe: Certainly, one of the things that has changed is well is that rise of specialist advisor. In my book, The Fiduciary Formula, I talk about that evolution and some of the trends that have reshaped the retirement industry and certainly you see, it's just as an advisor, you can't really compete if you dabble in the retirement space, it's just too complex. ERISA is too hard to navigate, it's hard to be what I would call a recreational 401k advisor in this day and age. I think the challenge is, now you have a smaller number of specialist advisors that are all really, really good and say a lot of the same things. So the competition is more fierce. There's probably fewer competitors, but it's more fierce and a lot of companies, or a lot of advisory firms do and say really similar things.
So I think that's actually a good jumping off point maybe to talk about, after you left Transamerica, how you wound up at Stadion, because with managed accounts and how that part of the market has evolved over the past several years, it's a lot different than it was three or five years ago. You're seeing everything from record keepers to advisory firms, to even asset managers in a lot of ways, start to evaluate whether or not managed accounts made sense and how that could be a strategic area to focus on.
So let's talk a little bit about your move to Stadion. How did you get there? What attracted you to Stadion and maybe even what Stadion does. Obviously some people listening are going to know who Stadion is, others may not. Before we get there though, one question I had, if you had to do it again, would you have sold your firm? Would you have gotten out of the advisory business? Are you glad you did it?
Todd Lacey: Man, I like to call this a spicy meatball question chef. I would say yes I'm glad I did it because I think beyond the experience, the relationships that I've been able to establish across large broker dealers and other big advisory firms and record keepers and asset managers I found has served me well, particularly as I've gotten into the role at Stadion, to be able to reach out to friendly contacts about business development initiatives. I don't know that my network necessarily would have been as expansive.
I also don't know that I would have really understood as well as I think I do now the record keeping business model from behind the scenes. So the answer's yes, most of the time. Of course there are times where I look back and say ... Especially when I look at the massive success that you guys have had. So that would have been great too, it would have been great to really build the firm or merge with you guys. I think that would have been fun. I think today, I would love having a great firm with strong revenue and strong clients, but it could go either way and I certainly don't regret it.
I'm all about life experiences and business experiences and if that means changing either my role or evolving my role with an organization, or going to a new organization to get new experience, that that's fulfilling to me and I enjoy that. So I would say 95% of the time, absolutely I'm glad I did it. There's 5% of the time in a quiet moment where I think, that would've been pretty cool too, to go for. So good question. Good question and a question that my wife oftentimes asks me. So I don't know if that was a plant question from her or not, but-
Josh Itzoe: It was, she emailed me yesterday and made sure I asked that one. Okay, so you wind up, you have a great time at Transamerica. You wind up leaving Transamerica and not there long after went to, I think, work with Stadion in more of a consulting role at first, not a full time role. Is that correct?
Todd Lacey: That's right.
Josh Itzoe: Okay. So how'd you find Stadion and maybe why don't you start, what is Stadion, for people who don't know that are listening?
Todd Lacey: Yeah, so Stadion is a managed account provider and maybe it would be helpful to define what a managed account is. Managed account is essentially a service within a retirement plan, an institutional plan, 401k, 403b, so on where there's a ... it's a professional money management service. So for participants that don't want to manage their own accounts, or perhaps don't want to be in a target date fund, it's a service that creates a personalized portfolio for that participant based on different factors.
So age is one of them, can be risk tolerance, can be location. Every managed account provider does it a little bit differently, but Stadion have been doing that business for 25 years as actually one of the largest managed account providers in the industry. So probably not a brand that maybe a lot of plan sponsors or participants know, but I think a reasonably well known brand inside of the industry, and again, has been a leader in the managed account space for a number of years.
So what led me to them was I'm based in Athens, Georgia. Stadion is headquartered four miles from my house and I've known the CEO, Jud Doherty, and some other folks there for a long time. As you can imagine, living in a somewhat smaller college town and having a pretty large 401k asset manager four miles away, you know each other. So when I decided to leave Transamerica, I had been in conversations with Stadion, in fact, we have been in conversations for a number of years about, "Hey, wouldn't it be great to work together at some point?" I've always admired their business and admired their people. We're about a 60 employee firm, really a wonderful culture. I love the small business aspect to it. Really, it's like going to work every day with a group of friends and growing a business.
I don't think you can ask for much more than that as far as quality of your work life. So I recognized all that. I also looked at the managed account space and thought, this makes sense to me. You can get personalization in almost every aspect of your life, whether it's clothing or golf clubs, or remodeling a kitchen, whatever it may be, you can design and people expect it on Amazon, Netflix, things like that, yet inside of a retirement plan, things generally historically have not been personalized. So I looked at that and thought, "I see that as the future," and to have one of the top firms doing it right down the street, that was really attractive to me.
So yeah, I started out as a consultant, that was really to kind of test the waters a little bit on both sides to figure out, is this a fit? Within two months we realized it was a great fit, so that's when I came on full time.
Josh Itzoe: So, you're their chief business development officer, is that the official title?
Todd Lacey: That is the official title, yes. It sounds way more important than it is.
Josh Itzoe: That's a good title, Todd. That's a good title.
Todd Lacey: I said, "As long as you put chief in, I don't care what you put."
Josh Itzoe: Right, right. What does that role entail? What do you do? What's your day to day look like?
Todd Lacey: Yeah, so it's important to know first that when you're in the managed account business, everything is based on the integrations and availability you have with record keeping partners. So we don't go direct to a participant and offer to manage his or her money. We first have to establish integration through a record keeping platform. The companies like Securian and CUNO and Lincoln, and Nationwide, firms that we have partnerships with, we start with selling that record keeper on our service and why they should make it available. Then there's a 12 to 18 month period of time where we're being integrated on. It's a pretty complicated process.
Josh Itzoe: There are technology hurdles, if you will, to create integrations, that really where you're needing to kind of create the pipe, where you will, if data can flow back and forth.
Todd Lacey: Yeah, to manage hundreds of thousands of participant accounts at scale, you really need to have a technology bridge in place, where the record keepers pass us participant data and then we send kind of trade instructions, allocation structures back to them. That happens every single day. And that's actually just one component of the integration. So things like, how does the service appear on their website? What materials need to be provided? Disclosures? How is it displayed in proposals? so there's a lot to it. I did not really understand before joining how much was involved in that.
That's actually, we'll probably touch on this later in the conversation, but that's one of the biggest barriers to entry in the managed account space and I would argue one of the reasons it hasn't grown as rapidly as target date fund space. So, my role covers a few different areas, one is I oversee the team that manages the relationships with our 16 record keeping partners. So there's a key account client management role there. So I have a group of folks that do that and then product development falls in my world as well. So we're constantly, as you can imagine, trying to enhance the offering. So that's just an ongoing effort that requires a fair amount of work and feedback from folks like you, as far as what you want to see and what works and what doesn't, and then growth initiatives.
So new record keeping partners, we always are interested in expanding that list. As you mentioned, opportunities with asset managers and large advisory firms, we have a separate sales team that goes out and meets with advisors on the ground, the bottom up side of the business. My side is really more the top down, strategic partnership and growth opportunities. That's where I spend all of my time.
Josh Itzoe: Yeah. So I can't wait to dive into some of those questions and nuances. There's a lot more to the managed account space than it looks like at first blush and even some of the strategies and incentives or disincentives within the industry to be able to offer manage accounts. So I think we can dive into that, I can't wait for that. Why would you say ... Obviously when you look, at really what ... if you go back, it was the Pension Protection Act, that started the arms race for these professionally managed options. So this idea of QDIA, or qualified default investment alternative, combined with really the government's encouragement to do things like automatic enrollment and automatic escalation, but now you're getting people, instead of like we talked about part of the evolution, instead of people having to sign up on a voluntary basis for their plan, more and more companies now are automatically enrolling employees. So just that behavioral design, again in the fiduciary form, I've got you know, chapters kind of dedicated to this and looking at the data, it’s been just the growth of automatic enrollment, automatic escalation across the industry has been significant.
There's still quite a ways to go, but because of that, now you're getting people. I think in looking at the end of, I want to say 2018, I think the average Vanguard automatic enrollment plan had a participation rate of about 90%, their average voluntary enrollment plan had a participation rate of about 55%, right? Automatic enrollment really solving that kind of participation hurdle. Not necessarily dealing with deferral rates.
There's a lot of decisions that need to be made, but obviously if you're automatically enrolling somebody you have to, they need to invest that money. And with the Pension Protection Act, this idea of this QD IAA, and it needed to be a target date fund, a balanced fund or a managed account. I think to your point, the most predominant at least so far, it's really target date funds that have captured the lion's share of asset flows, because that's kind of the easiest way to offer a acuity as a target date fund. Not to mention a lot of the large record-keepers, whether it's a Vanguard or Fidelity or T Rowe price that have these beautiful distribution platforms. These 401k plans that are getting funded every pay period.
It's a great way, quite frankly to see if you're an asset manager and you have a record keeping platform. It's a great way to get flow into your funds. And obviously there's more scrutiny that we've seen over the past, call it decade around proprietary funds and what not, but without a doubt you've seen this huge proliferation of professionally managed options. And again, I think Sirolli by next year estimates that almost nine 90 cents of every dollar that flows into a 401k plan is going to go into a QDI. You've had this kind of target date fund, this massive growth of target date funds, and really focused on a handful of providers. Those names the Vanguards, the Fidelities that T Rowe prices, American funds.
I'd probably throw in there as well. You've seen this spot and managed accounts, I would say have probably financial engines I would say was probably the most well known managed account provider within the industry. And merged with Edelman Financial, at least historically. Where are you seeing kind of... I guess the first question, and again, long winded set up here. Why would a plan sponsor want to consider a managed account over a target date fund? What do you think should be the considerations for plan sponsors and what would go into them making that managed account decision instead of that target date fund decision?
Todd Lacey: It comes down to a couple of basic questions. One of which being do they believe there's value in personalization and do they that a characteristic beyond just one metric, which is age, which is how virtually every target date fund does it. They look at you and I think you're a few years older than me. Anyway, you look a little bit younger.
Josh Itzoe: I think I'm one year older.
Todd Lacey:One year, yeah.
Josh Itzoe: Which is not a few. We're probably in the same target date fund.
Todd Lacey: Totally, right. If we had a managed account, our allocation would be much different.
Josh Itzoe: Totally personalized.
Todd Lacey: That's right. When you start thinking about it, in terms of should every 43 year old, 44 year old be allocated the exact same way. I think most whether you're in our business or not in our business would say maybe not and I think about when you look at private wealth and how it's done over there when you're generally for maybe a more affluent investor, but even with the robo advisors and things that has come down market, but if you had a client walk in and say, "I've got $500,000, I'd like you to invest it for me."
And you said, "That sounds awesome. Tell me how old you are." And he said, "I'm 44." And you said, "Thanks a lot. Come back tomorrow. I've got a great allocation for you." That probably wouldn't fly. Right. It wouldn't make sense and that's how target date funds do it. I say that I also believe target date funds have been incredibly valuable. I use them in every plan when I was an advisor. I think they have served a great purpose and I think they will continue. But I think looking at the evolution of these products and looking at kind of managed accounts as the next option on that continuum and being able to personalize a portfolio for someone, and I know we'll talk about this as well, but without necessarily requiring a lot of action and seeing some of the metrics around the benefits of personalization especially in a market like what we've seen this year where it's been shown.
If you create something that's the right fit for someone that's aligned with their risk tolerance. That's really custom built for them. The likelihood of them making a decision in a volatile market that would hurt them is much lower. And there's some really interesting stats around that. We've seen the fro rates potentially higher with managed accounts. Retention rates, meaning-
Josh Itzoe: Why... That's an interesting point around. At the end of the day and I would totally agree with you. I think target date funds have hands down created better investment outcomes for participants than the, do it yourself. I cite a lot of the data actually in my book. Both books that I wrote, the "Fixing the 401k" as well. Even going back 12 years ago, there was that data to show that. And like you said, a ton of money and effort and time has been spent over the past 20, 30 years trying to teach people to be better investors, but most people don't have a knowledge gap. They have a behavior gap. And so target date funds without a doubt, I think improved the overall investment experience for many, many participants.
That being said, you can't invest your way out of a savings deficit. A lot of times people think that, how your investments perform is the key driver in terms of your retirement outcomes. But the reality is while it is important, it's really the savings rate. I mean, that's kind of the magic number when it comes to driving successful outcomes and can actually take a lot of pressure off how you need to invest if you've got sufficient savings rates. And it's interesting how have you seen, how can manage accounts actually to the comment you made. How can it help drive up deferral rates? How can it help increase savings rates, whereas maybe a target date fund won't.
Todd Lacey: Yeah. I think what you see in managed accounts today is despite them being able to be set up in a way that doesn't require a lot of action. Generally managed account investors do tend to be a little more engaged than a target date investor, particularly someone that's just been defaulted in. What we've seen with target dates is someone gets defaulted in it three, four, five, 6%. I know we want that number as high as possible. They don't touch it. And with managed accounts, which today are not as commonly used as Accudose. We call it Participant Choice when it's not used that way. If someone's opting in saying, you know what, I want someone else to manage my money for me. I recognize I can't do that, but I'm going to engage. And I'm going to look at this. And most managed accounts have sort of a flow to them where they address deferral rate.
And they say, if you were to defer more, this is potentially even the tweak to your allocation. Someone's going to defer more that could have an impact on maybe how they should be invested. I think today most managed account participants are a little bit older. They have more assets they're getting closer to retirement. Their needs are a little more complex. They're thinking more in terms of, oh, I better save more to hit my goals. I think as things evolve and managed accounts become used more as a QDI where people don't touch it. It'd be interesting to see what happens. The impact on that referral percentage. It may fall more in line with your typical defaulted person, regardless of what they're put into where they're just kind of stepping back and not doing anything. But I think that's why you see that.
And then there's also studies that show managed account investors get a better return. And my theory on that, which is just a theory. Is it's not about the quality of the investments. There's a lot of great target date funds out there that do a good job, managing allocations and selection of underlying investments. More about kind of back to your points, the behavioral impact. There are statistics that show people stay in a managed account longer than they stay in a target date fund.
If you look out three, five, 10 years, there's much greater retention in a managed account than you'd see on a target date fund. I think there is a mentality associated with a managed account that a lot of participants have, which is even when the market's going crazy up or down. I'm kind of being taken care of, therefore their tendency to go in, move to cash a bad time or make moves that wouldn't benefit them. That tendency is much less in a managed account, which manifests itself typically in a little bit of a better return. That's something-
Josh Itzoe: That's an interesting you see that the data that you're talking about. You see that relative to a target date fund. Because I can totally see that relative to some individual investor and they're coming up with their own allocation, but the data that you're referencing even shows. Call it, stick to it rates even being higher with a managed account even than with a target date fund. Which, because it's professionally managed and it's diversified and the kind of the ups and downs tend to be less than a, do it yourself, or who tends to invest in much more on the extremes either way to riskier way too conservative. But that data has suggested is that managed account strategies are stickier in terms of people staying the course then even target date funds.
Todd Lacey: Yeah, I think that is because generally with a managed account it's sort of an all or nothing approach and it's almost a separate experience through a participant website. This one's going through the process on the site. And do you want your money managed for you? Yes. It court's them over to that managed account experience. Which again is an all or nothing. We operate as what's called a participant level three 38. As an investment manager that takes discretion versus just advising.
And we require a full investment in the managed account. Whereas, a target date fund is... Part of a list, right? Your average participant probably doesn't even really know what that is exactly. And they're in four of them or they hit a button and they moved from that to the small cap growth fund. It's very easy to almost misuse a target date fund. It's just a transaction. And I think that's one of the main reasons you see kind of a different way that managed accounts are used relative to a target date fund.
Josh Itzoe: That's a really good point. I hadn't thought about. We find that... I mean, even at our firm, I would say relative to the industry. The participants in our client plans use target date funds at a much, much higher level than kind of industry average. And part of that is we've been successful. We're big believers in target date fund re enrollments. We've got really good track record as far as doing that. Not just at conversion when it's easy, but more of an existing record keeper. And we find the behavioral design really works and the opt out rates tend to be low. And that being said, it goes back to the legacy of 15, 20, 30 years ago and I think we've probably done a good job of hammering it into people that you should be diversified when you invest.
Don't put all your eggs in one baskets. We find it still that there's a lot of participants who misused target date funds. It's really meant to be put all of your contributions and all of your current assets in the plan in one target date fund. But we find that still that you get participants who... Hey, I'm going to hold, I need to be diversified. And they think of diversification less about what's under the hood and more how many funds do I have? And so, okay. It's funny, I've seen it at times participants will have half their money in a 20, 20 target date fund and half their money in a 20, 30 target date fund.
And when you look at the under allocation it's literally they could have put all their money and it's 20, 25 fund and essentially accomplish the same thing. This idea of these kind of unintended consequences. That's an interesting point and I think a good one is that when people don't look below under the hood, they may actually be taking on more or less risk than is intended with the target date fund. Whereas the managed account because it's an all or nothing proposition you really can kind of control the allocation under the hood much more effectively. That's actually a really interesting point.
Todd Lacey: And you can also just control the underlying holdings more so than in most target date funds. I mean, there's custom target date funds generally in the larger market things like that. But I think back to kind of as a plan sponsor, why consider one. Now if you work with great advisor like you guys who have a very strong robust investment analysis process, whether you like passive or active or whatever it may be to be able to take those your best thinking and actually put them into a professionally managed solution at a reasonable price.
Versus having to kind of just defer to the asset manager to pick those which generally are proprietary in a lot of cases. I think that's seen as a benefit and outside of a managed account in the small market. It's hard to do that. There're models like an aggressive model, but those are typically static. They're not going to glide path. I think that's... What we're seeing out there with advisors is they like that idea and this managed accounts as a way that can bring that down to even a micro plan. That's one of them. Not only is it the allocation, but it's the holdings as well.
Josh Itzoe: That's an interesting point too. Just in terms of most plans certainly if you're working with a specialist advisor. You have an investment policy statement. You've got some due diligence process. Whatever that looks like in terms of monitoring all the individual funds. A fund under-performance for whatever reason. You put it on watch for a period of time you document. Why it's on watch. You can replace it if you want. If it underperforms and you've got that flexibility, whereas with a target date fund it's not like you can go to T Rowe price and say, "Hey, your emerging markets fund. We don't think it's the right fund. We want you to replace that."
They're going to tell me to go pound sand. Whereas I think that's the point that you're making is I would imagine, and I could be wrong, but do you typically find that most within the managed accounts they're using the underlying core funds in the fund lineup. If in that case there's an emerging markets allocation within the managed account and the individual fund making up that asset class under performs. You can take it out of the plan. I E you can also take it out of the managed account and you can replace it to help from a fiduciary perspective. Follow up a more consistent process. Not just with the funds that are made available, but how they're used in these managed accounts, unlike what you can do with a target date fund when your kind of stuck with whatever the due diligence decisions are relative to the target date fund provider.
Todd Lacey: Yeah, that's exactly right. I mean you can populate a managed account in different ways. The most common way to do it is the way you laid it out. Advisers select a fund menu, and then the managed account provider or potentially the advisor then takes a subset of that menu to include in the managed account. That said there are other ways to do it. We have some advisory firms that have built their own CIT's, Collective Investment Trusts and they want to use them in the managed account, but they don't want to make them a core menu option. Or some advisors that have some esoteric funds that they feel are make sense in their managed solution, but they don't want to put them on the menu and then have someone put a hundred percent of their money into it. They think there're risks there. We call that carving out some funds. Not every record keeper can do that. There's some operational work there, but many can and so it can be done in different ways. But the way you said it is probably 85 - 90% of managed accounts, that’s the way it’s done.
Josh Itzoe: It'll be interesting to see what happens kind of moving forward with some of these more esoteric. Obviously recently a lot of noise being made about private equity and I'm personally still not sure that's a great idea for participants. If you work for Private Equity Firm it's probably awesome. The access to potential dollars is absolutely incredible, but it will take time to see whether or not how those types of solutions get implemented into plans.
I suspect that managed accounts will probably be an area where you see that if you can certainly carve out where you may not make a whatever... One that I think the industry needs to figure out how even private equity can fit in with liquidity issues, and lockups, and lack of transparency, and fees, like how that even fits to defined contribution plans. I think is going to remain to be seen. But I would imagine that managed accounts is probably an area where you could see private equity showing up. Especially if you don't have to make it part of the core fund lineup.
Todd Lacey: Right. Right. Yeah. I mean, that's a good example. And there are others where participants... When it's on a lineup they have full discretion of how they want to invest their money and 90 plus percent don't necessarily understand kind of back to your point about target date funds. They don't understand each investment option and the inherent risks associated with them. And I think plan sponsors have to, as they work with their advisors, have to be thoughtful about that too.
And if you're going to include something like that on a menu, how does that fit into your investment policy statement? And are you comfortable doing that? But again, if an advisor believes that it's important to have a selection and monitoring process for their fund lineup, which we know from a fiduciary perspective that's core, it's critical. Then our contention is that that thinking should also apply to the professionally managed solution.
As opposed to sort of just deferring. The exception being, I think when you get into index funds and passive funds, which I know that Greenspring likes a lot. If you're a firm that says really what we want is we want low cost options that tracking index in that sense a target date fund that only invests in those types of... That to me is perfectly fine. I think as you get into target date funds that are more actively managed where you are fully deferring to that asset manager to make all those decisions. That's where there's an interesting conversation to be had around instead of that, perhaps using a professionally managed account to take your best thinking, put it into something like that may be a really good dialogue to have with a plan sponsor.
Josh Itzoe: Yeah. How are you finding advisors? And I want to jump back in a minute to talk about personalization, but you're mentioning obviously advisors are one of... You guys can go kind of direct to plan sponsors through a record keeper relationship, right. Where a kind of Stadion is managing overall kind of the allocations and what not. And then you also... Effectively are kind of like a managed accounts technology provider. If you will to advisors who want to kind of step into that role of, Hey, we want to be able to determine the allocations and what not and really leverage your infrastructure your technology to kind of enable correct? How are you finding advisors? And it sounds like kind of the larger end of the market. You're starting to see advisors utilize managed accounts. I assume part of that may be just to try to differentiate.
Part of that could be to provide more choice. Part of that could be a additional revenue streams. And like we've talked about before and what you typically see as best practices and trends. They don't start in the large market or the small market and go up market. They in the large market. And then over time, they kind of trend down. That's why you see automatic enrollment for instance enlarge plans is used about three to one over small plans. Automatic escalations is about five to one in large plans over small plans. The smaller end of the market, which quite frankly probably makes up 90% of the market that kind of under $10 million plan space tends to be more of a laggard in adopting trends and best practices. But you're starting to see these kind of larger advisory firms. There's obviously a lot of M and A in the industry and creating kind of these teams and mega teams and these large firms.
That's where it sounds like you're seeing maybe the most activity. How are advisors, I guess one, why do you think they're doing. Why do you think they're kind of starting to play in this managed account space and then how do you manage some of the potential conflicts of interest and prohibited transactions? And I think that's good from the perspective of if you're an advisor thinking about getting into the managed account space, but also for plan sponsors. What should they know and be aware of just in terms of potential conflicts and prohibited transactions. If they have an advisor, how can they be better consumers of professionally managed options? If an advisor is bringing kind of this managed account story to them, if that makes sense.
Todd Lacey: It does. It's a good question. And maybe I'll start by clarifying kind of the spectrum of services that we offer in terms of the role an advisor can play. Right? Historically Stadion has offered what I call a bundled managed account, right? Where we kind of do all the services associated with the managed account. We are the sole participant three 38, and over time, we've almost unbundled that to create more of a modular solution where we can say, "Hey adviser, if you want to play a role,. we can kind of unwrap the offering and we can step out of whatever role that you want to play." That's really been a trend over the past two years probably. Kind of a new evolution of managed accounts. And we only sell through advisors, but because we have those different types of solutions. We can serve the nonspecialists that just wants us to do everything all the way through your larger specialized firms that want to play a role.
That's really the way we kind of position our flexibility as a differentiator to say. Regardless of the kind of advisor you are, we can provide those different options. And there's this kind of enabler concept is where I'm spending a lot of my time working with these larger firms that have already in many cases developed their own managed account, but that's a brand new industry that are kind of niche in our industry that's starting to expand. And I would say we're one of two, maybe three managed account providers that can accommodate that, which is generally called advisor managed accounts or AMA. And there's kind of three roles simplistically that need to be filled inside of a managed account. One is who's picking the investments that are offered. Two would be who's building kind of those core component allocations to then be used in the third step, which is who's actually building the participant allocations.
Who's saying, "Josh, so you're 44. You live in Maryland." Who's taking that and creating that customization. What we're finding is almost every one of these large firms, they certainly want to play that first role. They want to pick the underlying investments. Typically, they also want to play the second role, which is what is the core equity allocation, fixed income. So on rarely if ever do they want to play the third role. That's really a role that we today play in every circumstance where they will look at our allocation methodology. We have CFAs on staff. We have robust documentation on how we build those allocations. And your better advisory firms want to do a deep dive on how we do that, which is an important fiduciary question. If I'm going to design an allocation for, as a plan fiduciary, whether it's the advisor and or the sponsor. You really need to know how that's happening.
Right? And that's kind of how it plays out as far as why advisors are doing it. You kind of mentioned it. I think number one is they believe that personalization makes sense and is likely kind of the future. And they're starting to look at target date funds and say, "Is that the best we can do for participants?" It's good and it has been great. And to your point earlier, people are better off today than they otherwise probably would have been. If that vehicle didn't exist in glide path and getting more conservative over time. That makes sense. But is there a better way? And I think your bigger firms have really looked at this hard and said, "We do think that's a better way." But they're also trying to differentiate themselves.
I mean, and you kind of touched on this and back when I was an advisor and you were advisor early on, being a fiduciary and having the documentation and the fiduciary involved and all the great things that you do. That was different. We were going in and picking off plans left and right from kind of brokers or that they weren't a fiduciary and it didn't even have an investment policy statement. I mean, that was very... As you know, very common. Maybe it is today, but now you've got a lot of specialists that have emerged. And that story frankly is not that different right between specialist and you mentioned-
Josh Itzoe: It's table stakes. I mean, you don't differentiate on the governance aside anymore.
Todd Lacey: You got to have it. Plan sponsors should expect that as almost the minimum, right? Advisors are looking at that saying, "All right, what else can I do to differentiate them?" You guys have built all sorts of tools and services that make you very different and great firm. There are others that are looking at it saying, "We think we need a managed account service to kind of add to our menu." We believe that makes sense. We don't want to just let a third party be that service. We want that to become part of what we do and that's where that's come from.
But I think we'd be lying to ourselves if we didn't also look at the revenue piece of it. There are advisors that, and I think it's perfectly fine if you navigate the conflict of interest piece that I mentioned, but their revenue has been squeezed oftentimes much like record keepers' revenue has been squeezed over time. I think because of that competition, you mentioned, you're seeing if not a backup in terms of fees sometimes. You're certainly seeing a flat line of advisory fees, which I think is good for the consumer. Definitely, but it then makes it can create a challenge for that advisory firm. And they're looking at it saying, "This is another service. And for that service, we deserve to be paid for that." And I think that's fine.
Josh Itzoe: You know it's interesting when you start to see some of that fee compression. And I think generally speaking, advisers don't try to be kind of the lower cost. It's hard to compete with the low cost provider. And if I've learned anything... I think wrote this precise sentence and the fiduciary formulas, like you get what you pay for in the retirement industry, you know.
That doesn't mean you should overpay, but the cheapest is rarely the best because it's cheap for a reason. ERISA doesn't require the cheapest, but fees do have to be reasonable. But I think it's interesting with advisors and quite frankly, probably record keepers as well, but especially with advisors, it's less about like, "Hey, let's try to reduce our fees," and it's more like, "Let's maintain our fee levels, but the way we're going to do that is we're going to value add up," right? We're going to do more to try to maintain kind of the level of fees.
And so that might be kind of what you're alluding to in some ways is, hey that now we're used to getting X fee for X amount of revenue and X amount of profit, and we're getting pressure there. So in order to kind of justify that less value add up and let's add more kind of services or capabilities. The reality as to do that you have to spend more so it still does tend to put kind of pressure on maybe profit margins but I think that's probably what you're alluding to in some ways, is this constant push. With the focus on fees, it's hard to try to significantly increase your fees, but we're being asked to do more and to compete and to differentiate. So I think that's a good point.
Todd Lacey: And there's certain services Josh, where I think as an advisor, it takes some development work, but it may not on an ongoing basis create a huge expense for you guys to... So and again I think that Greenspring has built sort of this platform and you're adding to it, but you're doing it in a way that allows you to offer it, I think, efficiently in a lot of cases to your clients. So that's something as a business owner, of course, you're going to think about. Managed accounts can fall a little bit beyond that I think where there is additional liability when you're taking a participant level 3(38) discretionary role. And oftentimes there is a lot of work upfront. I mean, some of the big firms where we've built these solutions, it's a six to nine month build that does take a lot of effort.
So most of them, I would say 99% of them are monetizing the managed account in one way or the other. So, and we can talk about how they're doing that if now's the time to do that and how they're navigating a prohibited transaction or a conflict which, because we know, and when I was an advisor, you didn't have any product, right? You were charging for advice and it was kind of a no, no to step into the product world at all, right?
And that has changed and more advisors are beginning to offer different variations of asset management products which they believe are valuable, are an additional revenue stream, but they're doing it in a way that is very transparent and kind of passes your fiduciary screen or your ability. They're doing it in a way that fits with their business model, which is still being objective and still being transparent, it's just, they now offer an additional service for that plan sponsor or business can pay for.
Josh Itzoe: Yeah, I mean, I think that brings up a good point is obviously there are prohibited transactions and there's exemptions that you can get around with being able to kind of increase your compensation. But I think maybe the most basic one though is when you're a fiduciary advisor at the plan level and monitoring a fund line or whether a 3(21) or a 3(38) where you have discretion and all of the funds aren't affiliated with your firm, like I can objectively evaluate a Vanguard target date fund or a fidelity target date fund and whether or not I don't have a dog in the fight right on whether or not that fund is in the plan or that target date series is in the plan.
But when I'm now responsible for I'm giving plan level advice on the investments that are made available and now I'm also essentially delivering that kind of asset allocation service, if you will, or I lose my objectivity, when I'm at my plan level kind of advisor, how can I objectively say, am I going to say like, it's a cop who is a cop going to give himself or herself a speeding ticket? Am I going to basically say, "Man your managed account provider really stinks. We need to fire them." That obviously is kind of a conflict from that perspective, which then who is going to make that determination is that then fall back on the plan sponsor and our planned sponsor's really equipped to be able to kind of make that determination.
So I wouldn't be interested just... I do want to get the personalization capabilities, but I wouldn't be interested in how do you see advisors kind of managing that conflict when they get into the managed account space?
Todd Lacey: Yeah, I mean, this is a really important question and it's brand new, but what we're seeing, there are a couple of different ways that they're doing it. One is they are charging a higher plan level fee, right? So they're saying, "We've charged $30,000 for plan consulting, whatever the number is and we now offer this managed account service and if you want it, we're going to charge 40,000," something like that, or maybe basis points across the plan asset whatever it happens to be. And that way they're not tied to the assets that flow into the managed account. It's just an added service that the plan sponsor has to make a decision, do I see value in this and if so, I'm willing to pay my advisor more to provide that service. That's a very clean way to-
Josh Itzoe: But there's no like managed account, there's no additional fee for the managed account per se, because it's essentially the delivering the managed account service, advisory service, the AMA at costs but it's really because it's built in as kind of a higher plan level consulting fee.
Todd Lacey: Exactly. In that model that's how it works. Now of course there'd be your managed account fees.
Josh Itzoe: Right, right, right. But the advisor is in double dip and they're basically saying, "We're going to charge you effectively zero to offer at the..." There's no additional fee kind of baked into the managed account per se, for the advisor, because we're getting paid at the plan level through our consulting engagement.
Todd Lacey: Yep. Yep. So there are firms doing it that way. Another way to do it is to actually charge an additional fee on the managed account. The way they're doing that is it's a separate service beyond their plan consulting fee. They're educating only on it, which again, that's a fine line. I think you have to be careful with that. That's very hard with firms that have 3000 advisors from 30 and it's tightly controlled under their RIA. But so some are saying, and this has been sort of signed off on by the ERISA Legal Community in some cases.
We have an educational approach. The advisor's going to the plan sponsor and saying, "We offer this service, here are the fees. Here's how much we get paid. Here's how it works. Here's all the documentation to support it for you to evaluate and plan sponsor through a separate contractual arrangement can hire that advisor for that separate service."
We actually see this with just advice. There's some firms that have a plan model and then, "By the way, we can provide advice to your employees and that's a separate fee." So we're seeing it structured that way. Now to your point, though, it does require that plan sponsor to be able to sort of kick the tires on that solution. So part of it is we actually have tools that we've built for plan sponsors that say here's how to kick the tires on a managed account.
So advisor has to decide what are they comfortable doing? That is an okay way to do it and then if they do it the education model are they providing the tools that their client needs to evaluate that service. And it's sort of similar to, if an advisor says, "Hey, you're supposed to kick the tires on me on my plan consulting." Plan sponsor says, "I don't know how to do that." And the advisor may say, "Well, here's some data or here's some..." It's coming from the advisor so they have to be mindful of that. So that's the way it's done today and they're both okay and they're both being received well by the market.
Josh Itzoe: One of the things you talked about and going back to with managed accounts, I think one of my, probably personal criticisms over the years, and then again, this is going back a number of years, you see the reality is whatever is the default is going to get the flow. So Financial Engines back in the day was kind of in some ways one of the, I think there was maybe there was Guided Choice. There were a couple—Mesirow might've had it—but there were a couple of other providers I think out there back in the day but Financial Engines was the one who really seemed to... similar to what you're trying to do at Stadion, right? He created the relationships with the large record keepers. And when managed accounts were simply kind of like a participant choice add on, I saw very little utilization uptick, probably on the order of like 1% of plan assets or less where somebody had to kind of choose to have a managed account and then pay for it.
Obviously I think if you probably looked at Financial Engines, which gathered a tremendous amount of assets, it was probably in large part due to the fact of the times when they were the actual QDIA instead of a target date fund, right? And that's where they were kind of capturing all the assets. One of my, I guess, criticisms over time has been with a lot of these managed accounts is it feels like at times that they're glorified target date funds that may call 60, 70, 80 basis points, but effectively because they don't have much in the way of personalization, they don't have additional data points mainly because at least the way that I've seen it in the past and I think you guys might do it a little bit differently and maybe other managed account providers have evolved as well but back in the day to really make it personalized a participant would have to go in and they'd have to enter in all these additional data points themselves.
And the reality is people are just disengaged and so they wouldn't do it and they were paying six, seven, eight times what they could pay for kind of an index fund to essentially do the same thing. So what are your thoughts as far as that goes and what are the ways to kind of, I'm assuming, I think you guys have maybe your own personalization engine, how does that work? What are the data points that you're looking at and where do you get that data?
Do you need participants to go in and kind of engage with the plan to do it themselves or is there a way that you can gather a lot of that data without them having to kind of be involved in the process and then build those allocations based on those data points. The more data, right, the more bespoke, the more precise these allocations probably can become and really achieve true personalization and not just kind of an off the shelf, maybe slightly more personalized target date fund, but not fulfilling their promise or being worth what's being paid for them.
Todd Lacey: Yeah. No, and I tend to agree. If a managed account is simply going to be age only without any sort of overlay of risk tolerance or other things, I think it's a fair question to say is that worth a higher fee relative to the target date fund? There should be a conversation around that. This goes back to kind of the evolution.
Josh Itzoe: Or you just have a managed model portfolio in that case.
Todd Lacey: That's right. So, I mean, you're touching on, I think two reasons that managed accounts have not grown like target date funds perhaps. And one is the level of fees that to me has been, they've probably been too high over the years and they have come down and then lack of engagement. So if you're a plan sponsor and you say, "I like the idea of managed accounts," I'm going to use it on an opt in or participant choice basis and 5% of their people or their participants use it and you have this question, should we be offering this thing if no one's using it. It's not that people don't like the idea it's that people aren't logging into their accounts and going through the process understandably so.
So I think the ways that we've gotten around that is through this, what we call our personalized QDIA approach, which I look at as kind of auto customization and it's all based on data, right? So I think record-keepers have gotten better at capturing important data to then be used to create these portfolios. So clearly age, location is kind of interesting because we think about tax, future tax impacts that someone would have on the distribution side we are—
Josh Itzoe: Cost of living as well, right? If you live some place where cost of living, you might wind up having, I mean, I'm sure wages would be reflected in that, but you might have more disposable income, more money that you can save.
Todd Lacey: Right, balance, things like gender are kind of interesting as well that females generally live a little bit longer and a female in California is likely to live longer than a male in West Virginia. That's what the stats show. And so I think there's a lot of interesting work happening in taking different data points, building that into your methodology, to create an allocation. I believe there's value there. And so that data isn't always easy to get. Again, record keepers have gotten better about it. We go to all of our partners and we try to get as much data as we possibly can get. You can get some of it directly from the plan sponsor. There's potentially payroll angle there as well.
So I think there's going to be more innovation as it relates to additional data. And then again, more innovation as it relates to how you use that data to create portfolios and then you as advisors and your clients then have to understand how all that works and sign off on it. And maybe once a year in a committee meeting, we say, "Okay, let's regroup on the managed account. Let's see what changes have been made if any, let's make sure this still makes sense." So, and then the fee side too, as I mentioned, fees have dropped in some cases. Our fees have certainly gone down over the years.
Josh Itzoe: What are the economics of kind of offering managed accounts? What does that look like?
Todd Lacey: So industry-wide, you're looking at an average managed account fee is around 40 basis points in addition to fund expenses. That's kind of your average in the industry.
Josh Itzoe: So that would be a record keeper getting paid. That would an advisor getting paid. That would be-
Todd Lacey: No that's generally just the managed account provider on average today. So the Retirement Leadership Forum, which is kind of an industry, kind of think tank research group, they did an interesting study.
Josh Itzoe: I was not invited to that forum. My invitation must've got... we moved offices last August maybe that got sent to the wrong address.
Todd Lacey: I'll dig into that. I'll follow up. But that's where that number came from. So they did a managed account specific study. And so industry-wide that's about the average, which I view is a little on the higher end, but that's going down. Their speculation is that the managed account fees will drop more to around that an average of 20 basis points-
Josh Itzoe: Plus fund expenses.
Todd Lacey: That's right. So in our world, we start at 10 basis points when an advisor wants to play a role and then some of our legacy products where we're doing everything goes up to 30 or 35 basis points. So if we're at 10 basis points, for example, and an advisor wants to play a role, depending on how that advisor monetizes it, right? Let's say it's in the side of the managed account and they put on another 10 and then maybe you have a passive lineup so maybe that's an 8 or just call it 10, and you're at 30 basis points for a fully customized managed account solution. I think our vision at Stadion is auto personalization using as much data as we possibly can gather.
Josh Itzoe: And that's your gathering that auto personalization, some of the auto in there is that a participant's not involved-
Todd Lacey: That's right.
Josh Itzoe: ... not required to go in and input information. Obviously if they do it's going to be hyper-personalized right? But you still have, or gathering enough data in order to automatically without them having to kind of touch it.
Todd Lacey: Yeah, exactly. So if you combine that auto personalization, right, with a reasonable fee to call it that 30 all in not including record keeper, but they would pay that anyway so just call it a 30, I think that's potentially the future and I think that is something that is worthy of a dialogue if I'm a plan sponsor and advisors. So, you know what fees have gone down, the engagement issue has been addressed at some level through this auto personalization, let's have a conversation about this and let's see if it makes sense. The other big point there, Josh, I would say though, is availability can be a little bit of a challenge because right now-
Josh Itzoe: What do you mean by availability? Availability of data in the personalization process?
Todd Lacey: No managed accounts solutions. So as an advisor and you've got a plan with XYZ record keeper that record keeper probably either, they may not offer a managed account at all, or they may have a one and it may be their own or they may in some cases have three or four, which is somewhat rare. So as you know in an open-
Josh Itzoe: Or they may have target date funds that compete.
Todd Lacey: That compete. That's really where they want you to go and-
Josh Itzoe: That's where they want you to go.
Todd Lacey: Yeah. And I mean open architecture in the investment side is great because you can cast a wide net and then from there pick the investments that you want. Managed accounts are not today in an open architecture format. Their time leadership forum also speculates that that will be the case down the road where that means you're working with one of your clients and they say, "Okay, there are five managed accounts available through the record keeper we're using let's vet the differences... let's make a decision to manage the accounts, make sense if so, let's look at the options." But our industry is not there yet.
And the reason it's not there yet is back to that barrier to entry integration. If you're a record keeper, do you want to spend 18 months, times five integrating five managed... So unless there's some sort of better middleware created or something that makes it more of a plug and play model you're going to probably for now have to live with the fact that there may only be one or two options. It doesn't mean it shouldn't be offered, but you're really more kicking the tires on that versus comparing it to a whole menu of solutions out there.
Josh Itzoe: Got it. Got it. So there's not many dates to the prom right now to choose from effectively.
Todd Lacey: Yeah. And again, it doesn't mean that the one date isn't a great date. It just means that I had a hard time getting a date at all so just having one in my book is a good thing.
Josh Itzoe: We're actually recording video on this and I know why.
Todd Lacey: That's why. A face for podcasts, that's why.
Josh Itzoe: People tell me I have a great face for radio.
Todd Lacey: You do.
Josh Itzoe: I get it.
Todd Lacey: So I think that there is value as an advisor saying, "What does the managed account landscape look like?" And even though we may not have everyone available is the one that we have available competitive relative to what's out there. You just generally can't do that on that record keeping platform, which again is okay if you like the one that's there.
Josh Itzoe: So that is interesting too. And so it sounds like what could evolve over time, as well as in the same way that an advisor they may say, "Hey, I don't want to play an active role in the managed account solution in the same way that I don't want to create a record keeping platform internally." But once there's more choice out there, which is really a technology enablement issue, probably in some ways, but once there's more choice, hey, I'm not going to play a role actively in the managed account solution, but I will help you, Mrs. plan sponsor figure out which of the however many are available are the best one, and most prudent for you to offer to your people based on same way that if we evaluated five different record keepers from that perspective.
But there's just not enough choice right now and that's really some of those barriers it sounds like technology wise. How hard is it to get, obviously there's time and cost? How hard is it to get these kind of record keeper relationships in place? Because I do know there's a huge battle around data right now around cybersecurity and there was a lawsuit in April that was filed against a Light Solutions and shoot, I'm forgetting the name of the plan sponsor, a big plan sponsor and was around a participant ledge that they had like $245,000 stolen from their account because someone hacked their account.
And so you see that element of cyber. And then you also see, and, and, you know, Jerry Schlichter is starting to kind of advance the narrative and I think this is the next battleground in ERISA litigation is whether or not data is a plan asset and record keepers, right? That are trying to... and other service providers is it legal if you will, to be able to use participant data, to try to market other services and whatnot.
So at least what we've seen is security protocols focused on cyber. A lot of these record keepers are getting very kind of testy and locked down around providing kind of access to their data. They're guarding it very, very closely. Are you finding that as you're trying to kind of build these partnerships and is that one of the barriers you think is just kind of the evolving cyber and data as a plan asset issues that are emerging or not so much?
Todd Lacey: Well, when we engage with a new record keeper, they kick the tires heavily on our data protection protocols and our security protocols. We've built... all the technology is all in house, so we don't outsource any of that and we've done that for 20 plus years. So we've got significant procedures protocols in place to check all those boxes but I would say the questions and requirements that we're getting and being asked to do that's grown big time understandably so.
And so, and we also, we have a plan sponsor agreement and a participant agreement. So when we're hired as the managed account provider, there is an acknowledgement of the data and the dynamics that is in place between us and the record keeper. But there's no doubt that is a topic that we're all having to focus on and anytime you're dealing with data like that, that needs to be addressed. So we're seeing that.
I would say the kind of back to the menu of options that we talked about, the concept of us being an enabler is to me really exciting and we're spending a lot of time there where as you mentioned earlier, there are many firms that want to have a managed account solution and whether they be advisory firms, asset managers, so on, and they don't have that integration, they don't have the piping, they don't have that in place. So to build it, they not only have to have the in house expertise, which most don't have, or they have to partner with the firm and hire them to do that, but record keepers don't want to do it right, because they don't want to spend 18 months and all this time doing it.
So when they look at us, they say, "Wait, you have 16 record keeping partnerships. Could we use you for that service either for existing or could you build it for a new record keeper that wants to add our product?" The answer is absolutely and it's almost a little bit of a new business model for us that I think is very exciting. That type of service, I think will ultimately lead to a broader menu. So if we're the piping, but we've got four other firms that are leveraging that, that has then created more choice, which I think from Stadion's perspective strategically, that's going to be a big area of growth for us where that's kind of our technology arm that I think will serve the market really well, because it will provide additional choice for you that want to do that comparison and benchmarking.
Josh Itzoe: An able to scale from that.
Todd Lacey: Yeah.
Josh Itzoe: It's kind of like back in the 80s and 90s, maybe like the Intel inside-
Todd Lacey: Right.
Josh Itzoe: Right, model.
Todd Lacey: That's exactly right.
Josh Itzoe: Intel would create the processor that would go in every manufacturers computer and get scale and distribution from that perspective, instead of building their own PC, that was only an Intel PC with their own processor.
Todd Lacey: In fact, that's exactly how we refer to it. So we say-
Josh Itzoe: You didn't tell me that ahead of time.
Todd Lacey: I know.
Josh Itzoe: You did not mention that yet.
Todd Lacey: Good, now we share a brain.
Josh Itzoe: That's it.
Todd Lacey: But I will say that as a firm, we're totally fine not being the front face and brand. We're fine being the Intel inside and most advisors that are doing this, they want to be the front facing brand, they want to be very apparent to the participants. And so we're great with that. That's perfectly fine with us.
Josh Itzoe: It's interesting just in any industry the person who is closest to the end user customer is highest up on the value chain is the least likely to be replaced, not impossible, but least likely to be replaced. And that actually leads into another question or another kind of topic that as we kind of wrap up, I think is interesting, right? So you've got these, you've got the really large record keepers, the large asset managers, again, the mutual fund industry and the 401(k) industry grew up together mainly because you had product on the fund side, right? And you had distribution on the 401(k) side. The big players that have captured, I mean, it's really been an arms race and at the end of the day and Vanguard started to kind of pull away is capturing a huge amount of not just asset flow in general, but target date flow.
I think they over the past couple of years have probably captured 50% of the target date flows within the industry, which is massive. But then you, obviously you have T. Rowe Price that's in there, you have, I think, Fidelity, which has a lot of legacy positions. I would say American Funds as well. Those first three are all really large record keepers. They work with large plans and you got to have a lot of... you got to have $52 million plans to equal $100 million plan.
So some of those big larger providers kind of tier one that have play in that mid to large space, or obviously capturing a lot of the assets and a lot of the flow. And if you're a fund company and you're not one of those three, and I would say American Funds, which plays more, they have a record keeping platform in the small market space, but they've obviously had great performance. I think probably maybe the best performance out of all target date funds over the past probably 3, 5, 10 years. And so they're leveraging that, but if you fall outside one of those four, I mean, you've basically, you've been shut out of the target date fund market. And from a fund company standpoint, I mean a lot of these asset managers are struggling, right? Especially if you're more active. I think if anything there's been a huge shift in passive, and passive only represents, or index only represents about, I don't know, 30 or 35% of the total investible market in the world right now, but it's been growing like crazy at the expense of active funds. And I think there are probably still, I mean, we lean very passively, from a philosophical standpoint, but I think what's happened is you still see active managers out there. It's just kind of the crappy high cost active managers adding no value are the ones that are kind of being pushed away. But if you're a fund company and you've lost the target date fund battle, and you're not getting back in there, what are you seeing with some of these asset managers how they're thinking about managed accounts, and is it a way for, if I'm a fund company and I don't have a target date fund or I do, and it just gets no flow, because I don't have any distribution for it. Are they viewing kind of managed accounts as a way to kind of get back in the game, if you will? What have you seen from that perspective?
Todd Lacey: That's exactly what we're seeing. If you're an asset manager, five years ago that model the-
Josh Itzoe: So think about it, like a fund company that doesn't have like a record keeping arm let's say.
Todd Lacey: That's right. That's right. So, I mean, if you're a fund company with a record keeping arm, that's great for the fund company, because they can just sell those funds to all those participants so that that's their model, and it's effective.
Josh Itzoe: At least they're trying to. I would say advisors have done a good job of weeding out some of those pushing back on that in a way that, you know, and you're starting to see some games, I write about it in the Fiduciary Formula. You're starting to see some games by record keepers looking to back into some other ways to get more profit and revenue. Sorry, but just wanted to kind of point that out.
Todd Lacey: Yeah. So you've got that defined contribution investment only industry, DCIO, which are those asset managers that really don't have, generally, they don't have the record keeping arms. So they're out there trying to get flow inside of retirement plans, and three, four, five years ago they were doing that by entertaining, and still producing kind of these thought leadership pieces. Oftentimes having nothing to do with their investments, but all these other value add tools, and oh by the way, I hope that leads to me getting slow in a plan.
Josh Itzoe: The last two minutes of that hour long conversation where they were talking about practice management, it's like, "Hey, let me tell you about my large cap value fund."
Todd Lacey: Right, right. And so, I think that model is antiquated and it's not effective anymore. And so you've got these firms saying, "Okay, if we want to be in the defined contribution space, which is a huge opportunity still, and will continue to grow, what's our play?" And we're seeing two strategies there one is some firms considering getting in, getting back into, or getting into for the first time the record keeping business, which many of them, as you know, gone out of. They're seeing those big firms and having that captured audience and saying, "Maybe we need to get back in if we really want to be in this business." That's difficult, that's a big strategic shift, and it's probably pretty expensive to go there. The other is getting into a managed account, or some other sort of model type solution. So maybe they're getting inside a CIT that an advisor has built, or some kind of risk based model.
There are some now going as far as saying, "We believe managed accounts are the future, and we're not just trying to get a spot in a managed account. That's great. We'll try that, but we also are now going to develop our own managed account, with our own allocation methodology," which they'll then promote as superior. And there's a lot of interesting work being done there, so it's great. But then they need that integration. That's where they fall short, and I think there are some that underestimate how high that barrier to entry is. And maybe they've pitched the idea to a record keeper. Record keeper says, "I like it." And they're stuck. And so that's where-
Josh Itzoe: So where Stadion could be the intel inside is effectively, the asset managers say, "Hey, you come up with the allocation methodology. You fill it out with the fund, your funds, if you will, but you're going to leverage Stadion effectively to be able to scale this to all our record keeping relationships." The 16 we have in place and probably more to come. You're effectively, instead of you having to build it one off with all of these different record keepers, you're going to be able to kind of leverage our infrastructure if you will, to implement and deploy a managed account solution.
Todd Lacey: Actually. I mean, and we see some of these firms are very proud, and probably rightfully so of the managed account product they've built, and they haven't thought about how am I actually going to distribute this thing. And the keys to the kingdom in our business, the record keeper integrations, that could change with technology and innovation, but today that's the deal. And so we've seen some kind of build it and then say, "We can't distribute this anywhere." And that's where firms like us, and there's other firms that will build the connection, but those aren't necessarily firms that have done it for very long, but also already have multiple record keeping platforms. So it's a new build, and that means speed to market is very slow. We're doing both, and I don't know there's going to be a hundred asset managers that go down that path, but I think the smart ones are doing that. And in some cases they're also monetizing it without having to use their funds. So they're just charging like a managed account fee and they say, "Hey, Josh use whatever funds you want. We have a methodology, like a Stadion charge for that."
Now ultimately what they would love is flows to their funds. That's the business.
Josh Itzoe: Right, right.
Todd Lacey: But some are opening up their minds to actually more of an RIA type fee, because they know they can't always guarantee that their funds would be included. So there's risk there.
Josh Itzoe: Yeah.
Todd Lacey: And that's one way to mitigate that.
Josh Itzoe: It is an interesting, if I just think from an asset manager and the comment you made, which made me chuckle a little bit, is like how proud they are of these managed account solutions that they've created.
Todd Lacey: Yeah.
Josh Itzoe: I kind of think, well, most of them probably have target date funds, are they not proud of the target date funds as well? And what's the differentiator if they haven't been able to get the target date fund series entrenched in a platform? I mean, really the managed account is same type of thing. You got to go in, and you got to sell whoever the gatekeeper is, whether maybe it's an advisor or maybe it's a plan sponsor or whatnot. So interesting where kind of the technology and the innovation is going, I think, remains to be seen with some of these asset managers, if they're able to actually do it. At the end of the day, probably in that case, you're really still married to performance. And that's actually a question, how do you calculate performance with managed accounts since it's really, in a lot of ways, going to be individualized? Is that something that like... I'm assuming there's not, not every participant has... If you have a thousand participants, you don't have a thousand unique portfolio allocations?
Todd Lacey: Right, right.
Josh Itzoe: Imagine maybe you have 20 or 25 allocations that kind of run the spectrum, but it's not a truly individualized instance for every single individual. You got to fit them into a bucket a little bit. But how do you look at performance of managed accounts? Let's say at more of a plan sponsor, fiduciary kind of plan level, not down to kind of the individual participant experience.
Todd Lacey: Yeah, it's a great question because it's a challenge that a lot of advisors have and many managed account providers don't actually produce performance. Some of the ones you've mentioned, because of what you said, they just say that the record keeper has the ability to produce the personal performance, which is fine, and that's the way some do it. But, and in our case, generally we have over 500 portfolios that we're using. So it's not maybe fully customized per person, but it's pretty darn customized based on having that many portfolios.
Josh Itzoe: So when you define portfolio, are you saying 500 different individualized allocations or 25 allocations, but we may have 500 because we're using different funds within those portfolios?
Todd Lacey: It's more the former. So if you think about it, we behind the scenes typically use, we might use six, seven, eight, nine glide paths that someone would fall onto one of those glide paths. And then if you look at a different allocation per age, we actually, in some points, may tweak the allocation every year on their birthday. So if you've got age 21 to age 70, times seven or eight bypass, that's where all those portfolios come from, and it's a-
Josh Itzoe: That's kind of somewhere between, right?
Todd Lacey: Yeah. It's 50-
Josh Itzoe: 50 times six, seven, eight, nine. Something along those lines.
Todd Lacey: If we're using 11 bypass, yes. Those numbers grow.
Josh Itzoe: Okay.
Todd Lacey: There's a construct there, right? It's not just everybody gets a new one. So because of that construct, we have the ability then to produce performance. Generally, we're not going to produce it for every single portfolio, but from a fiduciary perspective, we can produce a kind of performance for the core portfolios across those glide paths. So we have the technology, we've actually built a lot of in house technology to have the ability to produce that performance. But that is an area that can be a challenge with some managed account providers who either aren't able, aren't allowed, whatever it may be to produce that performance, but that is part of what we do.
Josh Itzoe: Got it, got it. Fascinating, and there's so much more to kind of manage the count, even somebody kind of in the industry have kind of learned a ton today and sounds like you guys are doing some really, really cool stuff. And obviously we'll see how things evolve. Like if you were to think about this as like a baseball game, what inning do you think managed accounts are? What inning of the ball game do you think we are, as it relates to managed accounts?
Todd Lacey: Managed accounts have been around about as long as target date funds, interestingly enough. Yet they're just a fraction of the assets that target date funds have, but so I would say we're in the very early innings still. And that's because of some of those hurdles that we talked about.
Josh Itzoe: Those barriers.
Todd Lacey: There's barriers. I think the growth though is going to be steep, moving forward for all the other reasons. And I do think they're going to begin eating into some of the market share that target date funds have had. No doubt target date funds are going to continue to be successful, but I think as managed accounts become more competitive, become more innovative, the cost goes down, the flexibility, all the stuff we talked about. There are going to be more sponsors and advisors that say, "Maybe that does make more sense."
And so I think it's kind of in this very, very flat growth curve for a number of years. And I see that turning. Turning significantly. It may not be in the next six months per se, but over time, I think in the next two, three, four, five years in our business, I think we're going to look back and say, "Man, this is a better way to do it." We're doing things, it's no different than you used to use the Sears catalog to shop for Christmas, and now you go on Amazon and they know what you want before you even know what you want. And we look back and say, "I can't believe we used to do it that way." I do think that's going to be the case at some down the road, whether that's three, five, 10 years, I don't know, but we're pretty convinced that is going to be the way we look at things at some point. So early, but starting to move.
Josh Itzoe: Yeah. Yeah, it seems, you know, it's interesting. So much of what you guys do is technology enabled and you just look at FinTech in general. Most of the FinTech, we've talked about this before, has been focused on kind of the private wealth side. I would say from like a technology integration standpoint, or a technology utilization standpoint, kind of the retirement industry outside of record keepers who were putting massive amounts of spend into their technology, actual kind of enablement tools for the advisor community are pretty lacking on a variety of fronts. I mean, you probably remember that back from your days in the advisory world, and it hasn't improved that much since then. And so I suspect that the tip of the spear for that growth is probably going to be the advisory community. And if there can be technology enablement, advisors who really want to kind of get value add up.
And ultimately, it's as the world goes more specialized, you don't have many plans that don't have some type of intermediary associated with them, some advisor, might be a specialist, might not. Obviously up market, you're seeing a trend mostly towards specialists. Very few plans work without an advisor or rely on their record keeper for fund selection like they may have in the past. And so, the more that these tools are available in these platforms, and these capabilities are actually deliverable for advisors. And it sounds like you're starting to have success with some of those larger firms that may be operating at scale right now, or trying to operate at scale. That'll be a big driver of that growth over time.
Todd Lacey: No question. I mean, this is the first time, say over the past 18 to 24 months, that we've seen your specialist advisors take a strong interest in managed accounts and go so far as to build their own.
Josh Itzoe: Yeah.
Todd Lacey: Historically you sell managed accounts upmarket, because financial engines was the leader, as you said, and they sold directly to jumbo plan sponsors and then kind of pushed the record keepers to then build. You've seen it in the small end through advisers that didn't specialize. Now we're seeing this growth in kind of that middle space with your specialists who are doing it for all the reasons we talked about.
Josh Itzoe: Right.
Todd Lacey: And I believe that once you get wind in the sails from that community, that's when this thing takes off. And we're just at the beginning of that right now. And that's probably the main reason we're so bullish, and as a firm, culturally, we believe in the value, strongly in the value that plan advisors bring to sponsors and participants. To say we only sell through advisors, and based on my background, I know firsthand how much value firms like Greenspring bring to their clients. It's remarkable, and I think there's more firms that are able to do that. I think to the extent we can align ourselves as a firm with that community, that's where we're going to see growth. There are some firms out there that are competing with that community, and that, I think, my personal opinion, and really the opinion of Stadion is that's not a smart strategy. You got to align and support your business model, your advisor partner's business model, and then you'll see a lot of growth in this niche.
Josh Itzoe: Right. So thinking about that, over the next, let's say five to 10 years, how you think the retirement industry is going to change, and specifically, how do you see managed accounts? Obviously you think that growth is going to continue, but how do you see it kind of fitting into that evolution, and where do you think, if we look back and call it July of 2030, and we look back 10 years, what do you think will have evolved? How do you think the industry will have changed during that time?
Todd Lacey: Well, I think very specific to this topic, I think you're going to see more personalized professionally managed solutions at lower price points. You're going to see more choice. I think you're going to continue to see advisors like your firm grow, and prosper, and do well, and eat up market share, because I think more plan sponsors are going to see that value, understand that value, and recognize that they need that to run a successful plan. So I don't see that trajectory changing at all. If anything, I think you'll see more and more consolidation of advisory firms, and continuing to gain a lot of market share rightfully so.
So I think you're going to keep seeing that. I don't see participants all of a sudden understanding how to invest their money. We haven't seen it in 20, 30 years. Now I don't see that changing. It's going to be simplify, lower costs. I also think-
Josh Itzoe: Automate.
Todd Lacey: Continue to automate, automate the whole thing, right? Just you get employed by a company within a certain period of time. You're in, you're in at six, seven, eight, nine, 10% of your pay. And you're in a low cost personalized solution. And if you do nothing, you're doing okay. You're doing pretty well. The other big change I think is coming, is right now, record keepers control the data. And I think that that's got to change over time. Where there's got to be technology that allows other entities that can provide value to participants to access that data more easily.
Josh Itzoe: So that's that middleware kind of clearing house, if you will, that is providing that kind of democratizing record proprietary record keeper data, or at least normalizing it into some format that allows for the easy flow and exchange between—
Todd Lacey: Exactly. And I mean, most record keeping systems are based on 20, 30 year old technology.
Josh Itzoe: You mean COBOL or something like that?
Todd Lacey: Yeah, and so a lot of good record keepers have added tremendous amount of technology on top of that, which is great, but you know, we still see it, and you see it in your business where it's oftentimes hard for a record keeper to build something new, or to make a change, or to share data because their systems are not that flexible. You're starting to see, Vestwell and some of these other kinds of innovators that are building technology that is built in a way that has much more flexibility and that's modular. And I think that's going to be something that we will see more and more of. And I don't know if that partly be current record keepers changing and evolving, that also could be new entrance into the market. Tech, does Apple? Does Google? And there's been all this talk over time about those firms. Do some of those big tech firms get into our space. It's hard to break in, but will that begin to happen? And will they change the world for us in the 401k space? I'm fascinated to see if that happens. I tend to think we're going to see some of that in the future.
Josh Itzoe: Yeah, absolutely. So knowing that kind of this podcast, kind of the goal is to make ERISA fiduciary smarter. If you could give listeners kind of one piece of advice that you think would make them smarter, what would it be?
Todd Lacey: I would say, and I think your clients know this, and I think a lot of plan sponsors know this, but the best thing you can do as a plan sponsor is to hire an awesome specialized advisor. That's the best thing you can do. If I'm a plan sponsor, I'm running your company. Even if I started my own plumbing company, even having been in this business for 21 years, I would align myself with a specialist advisor. I think that has been the best thing a plan sponsor could do. I don't see it as any different today. I think if you do that, and that's your most important decision is make sure you hire the right advisor that has the right business model. That advisor will then walk you down the right path, whether that's managed accounts, whether that target dates, whether it's auto features, record keeper selection, all of that, I think that is the single best decision, or biggest decision plan sponsor has to make.
And actually the other thing is, keep an open mind to innovation. There's a lot happening and clearly, my bias is going to be towards managed accounts, because I live it every day, but keep an open mind about tweaks you can make that would ultimately achieve the goal that I hope everyone has, which is how do we enable people to retire, quote unquote. Which really means have the choice to stop working one day, because you have enough money, like that's what we're all working towards. And working backward that, beyond just the fiduciary check boxes, what are the things that you could put into place to make that a reality? And I think having the right advisor, and then thinking of innovation, things like managed accounts, are really important steps along that process.
Josh Itzoe: That's awesome. That's awesome. Well, what about as far as, can you let listeners know where can they go to learn more about Stadion, and what the company's up to? Where can they connect with you? What's a good way for people to stay connected, and in touch, and find out more about what you guys are doing.
Todd Lacey: Yeah. The website stadionmoney.com. And so there's a lot of good information on the website. There's a way to contact Stadion generally through that site. Todd.lacey@stadionmoney.com. L-A-C-E-Y. Anyone of course is always welcome to reach out to me. We also have, as I mentioned, we have a team of salespeople in the field that work with advisors, plan sponsors. So, that would be the best way to get in touch with us.
And again, know that this is all we do. All we do is managed accounts. So we clearly want to sell business, but we also, I think are in a position to provide education on how these things work, and in a way that doesn't just pitch our offering, but kind of talks about, as we did today, kind of the landscape and things for advisors, for plan sponsors to really consider. So probably through the website, or certainly directly to me is the best way to reach out to us.
Josh Itzoe: Okay. I'll make sure to put in the show notes. We'll have links to that so people can reach out and find you, but this has been an awesome conversation. It's been a lot of fun. I've learned a ton about managed accounts, kind of through this whole process, and always admired you, and respected what you've done, and to kind of see what you've done since you've gone to Stadion, it's impressive. I mean, the growth you guys have had even in the past few years, and the number of relationships you've been able to kind of build to kind of fulfill your mission is really, really cool. So thanks for being a guest, and great insights, and it's been fun.
Todd Lacey: This has been awesome. I can't thank you enough for the opportunity. I appreciate your friendship and the admiration is mutual. So you've been a leader in this business for a long time, and I love, love having watched you guys grow. So thank you. This has been a lot of fun. I appreciate it.
Josh Itzoe: All right, thanks so much.
Todd Lacey: Okay.
Josh Itzoe: Hopefully everybody has gotten a great, you know, some perspectives. It's helped make you a smarter ERISA fiduciary, and we are glad that you listened this week and stay tuned for more. Thanks.
Thanks for listening to today's episode with Todd Lacey from Stadion. I hope you enjoyed our discussion, have a better understanding about managed accounts, and it helped make you a smarter ERISA fiduciary. If you'd like more information, or you'd like to connect with me, please go to www.fiduciaryu.com. I've got some great resources there for you, including each episode, along with show notes, articles, free tools, and online courses.
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Greenspring Advisors is a registered investment advisor. The opinions I express on the show are my own and do not reflect the opinions of my guests or the companies they work for. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information and content presented on the show is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation, or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. And past performance is not indicative of future performance.
This recording was captured on July 14, 2020. The opinions expressed are those of the Stadion Investment Team. The opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational use only and should not be considered investment advice. The information discussed herein is not a recommendation to buy or sell a particular security or to invest in any particular sector. This recording may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Stadion’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this recording may be relied upon as a guarantee, promise, assurance, or representation as to the future. Stadion reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs and there is no guarantee that their assessment of investments will be accurate. The discussions, outlook and viewpoints featured are not intended to be investment advice and do not take into account specific client investment objectives. Before investing, an investor should consider his or her investment goals and risk comfort levels and consult with his or her investment adviser and tax professional. Stadion Money Management, LLC (“Stadion”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Stadion’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.
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