Custom TDFs should replace the 'managed QDIA'

Managed accounts are back in the 401(k) spotlight, and Ron Surz wants sponsors to notice that the label is doing double duty. Writing in 401(k) Specialist, he calls the managed-account QDIA an oxymoron: everyone wants personalization because investing is personal, he grants, but the participants who default into those accounts are precisely the ones who do not want to talk to an adviser, so a product sold as personalization is aimed at a population that has shown no interest in managing it.

Surz notes that the industry has long distinguished risk capacity from risk tolerance and concluded that risk tolerance is the better basis for an investment decision, yet both managed-account flavors now run under the same product name. A QDIA-based managed account sorts defaulted participants by risk capacity — how much risk they can afford — while a self-directed managed account works from risk preference, how much risk they actually want. Same label, two fundamentally different risk decision processes.

His proposed fix is to move defaulted participants out of individualized managed-account QDIAs entirely and instead use a managed-account framework to build a custom target-date fund for the whole defaulted cohort, blending Conservative, Moderate, and Growth glidepaths to fit the workforce's demographics, setting one retirement age for everyone who defaults, and conforming to DOL guidance that a plan's glidepath match its population. That vehicle, he argues, deserves a different name — 'Passively Managed Account' — while the 'Actively Managed Account' label should be reserved for the self-directed minority who engage with an adviser and make changes as they see fit.

The preference is practical as much as conceptual: the custom TDF is simpler, more straightforward, and time-tested, Surz writes, while the individualized risk-capacity approach leans on glidepaths 'that may or may not be the best' for the participant. He took up the challenges of personalizing target-date accounts a year ago, and the resurgence of managed accounts since then prompted this follow-up. The fight is playing out inside a $5.3 trillion target-date market where collective investment trusts now hold 55% of assets, and in Surz's telling the TDF industry's oligopoly is what keeps pushing personalization as a competitive edge — which is why participants, and the sponsors who choose their defaults, need to know which of the two products carries the name.

For sponsors, naming the product becomes the fiduciary test: a participant who defaults into a managed account will not read the fine print on risk capacity versus risk preference, so a provider that cannot say plainly which product it is selling has not solved the personalization problem. As this publication has argued, target-date due diligence is moving from fee and performance to workforce fit, and the custom TDF is the version of that fit a sponsor can see and articulate to a board. The individualized managed account, whatever its marketing says, is asking a passive participant to become an active one — the mismatch the 'managed QDIA' label hides, and the reason to read Surz's taxonomy before the next menu review.