Certified Plan Sponsor Professional (CPSP) Practice Exam

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What is a key difference between managed accounts and target date funds?

Managed accounts are less expensive than target date funds.
A managed account is often customized for the needs and risk profile of each investor, while a target date fund is managed the same for all investors.
Target date funds provide more consistent returns than managed accounts.
Managed accounts are only available to institutional investors.

The correct answer is: A managed account is often customized for the needs and risk profile of each investor, while a target date fund is managed the same for all investors.

The choice indicating that a managed account is often customized for the needs and risk profile of each investor, while a target date fund is managed the same for all investors, is correct as it highlights a fundamental difference in their management strategies. Managed accounts are personalized investment portfolios that are tailored to the individual investor's goals, risk tolerance, investment horizon, and overall financial situation. This customization allows for more specific adjustments to asset allocation, investment vehicles, and rebalancing strategies as the investor's needs and market conditions change. On the other hand, target date funds are designed with a specific retirement date in mind and follow a predetermined glide path that adjusts the asset allocation over time for all investors, regardless of their unique financial circumstances. This distinction emphasizes why managed accounts might be perceived as a more flexible and tailored solution, given they are built around the individual investor's profile, unlike target date funds which apply the same investment strategy across a broader group of investors with similar retirement timelines. The other choices do not accurately represent this core difference in terms of customization and personal relevance, which is critical for the understanding of how these investment vehicles operate within a retirement plan context.