Professionally Managed 401(k) Accounts Can Generate 3% to 4% Higher Returns Per Year
Money Matters – Skloff Financial Group Question of the Month – January 1, 2026
By Aaron Skloff, AIF, CFA, MBA
Q: Our 401(k) accounts represent a significant portion of our assets and are our largest retirement accounts. What are the advantages of having our 401(k) accounts professionally managed?
The Problem – Getting Professional Advice to Optimize Return and Risk in Your 401(k) Account
Charles Schwab’s ‘2024 401(k) Participant Study’ found 61% of retirement savers believe their financial situation warrants professional advice, compared with 55% in 2023.
The Solution – Professional Managed 401(k) Accounts Can Generate 3% to 4% Higher Returns Net of Fees Per Year
Vanguard’s 2022 ‘Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha’ study concluded that professionally managed accounts can add 3% to 4% higher returns net of fees per year.
The Vanguard study attributed the higher performance to the following components. See the table and chart below.
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Have Your 401(k), 403(b), 457(b) Account Professionally Managed
As seen in the table above, Suitable Asset Allocation is deemed significant. According to Vanguard, “a whopping 88% of your experience (the volatility you encounter and the returns you earn) can be traced back to your asset allocation”.
Professionally Managed Accounts Can Generate 75% Higher Values Over 20 Years. Applying Vanguard’s study, 3% higher returns per year can generate a 75% higher account value over 20 years. Let’s look at an example of a $200,000 401(k) account that is not professionally managed, based on 6% annual returns. Over 20 years, the account that is not professionally managed grows to $641,427. Let’s look at an example of a $200,000 401(k) account that is professionally managed, based on 9% annual returns net of fees. Over 20 years, the professionally managed account grows to $1,120,882. The professionally managed account has a $479,455 higher value, equating to a 75% higher value. See the chart below.
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Action Steps
Optimize the return and risk in your 401(k) account by having it professionally managed. A professionally managed 401(k) account can generate 3% to 4% higher returns net of fees per year, resulting in a 75% higher account value over 20 years.
Work closely with your Registered Investment Adviser (RIA) to professionally manage your 401(k) account.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA) is CEO of Skloff Financial Group, a Registered Investment Advisory firm specializing in financial planning, investment management and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
Have Your 401(k), 403(b), 457(b) Account Professionally Managed
Frequently Asked Questions
Q: Can a professionally managed 401(k) really generate higher investment returns?
Yes, professional management can potentially improve long-term investment results by optimizing asset allocation, rebalancing portfolios, minimizing behavioral investing mistakes, implementing tax-efficient strategies when appropriate, and maintaining a disciplined investment process. The Skloff article highlights Vanguard’s Advisor’s Alpha research, which estimates that professional advice can add approximately 3% to 4% of net annual value through a combination of these strategies rather than simply selecting better-performing investments. While results are never guaranteed and vary by investor, professional management may help many investors achieve more consistent, risk-adjusted returns over time.
Q: How does professional 401(k) management differ from using a target-date fund?
A target-date fund automatically adjusts its stock and bond allocation based primarily on your expected retirement year. Professional management goes further by customizing your portfolio based on your age, income, retirement goals, outside investments, risk tolerance, tax considerations, employer stock exposure, and changing financial circumstances. A financial advisor can also provide ongoing guidance during volatile markets, helping investors avoid emotional decisions that could negatively affect long-term performance.
Q: When can I move my 401(k) to a professionally managed IRA?
Most employees can complete a tax-free rollover into an IRA after leaving an employer. In addition, many employer-sponsored retirement plans permit an “in-service rollover” after reaching age 59½, allowing participants to transfer some or all of their 401(k) assets into a professionally managed IRA while continuing to work. Because plan rules differ, it’s important to review your specific plan documents or consult your plan administrator before initiating a rollover.
Q: Is professional 401(k) management worth the advisory fee?
The answer depends on your financial situation, investing knowledge, and willingness to actively manage your retirement portfolio. Investors who prefer a hands-off approach, have substantial retirement savings, own multiple investment accounts, or need comprehensive financial planning often find value in professional management. The potential benefits extend beyond investment selection and may include retirement income planning, tax strategies, estate planning coordination, and disciplined portfolio management that may outweigh advisory fees over the long term.
Q: What services are included with professional 401(k) management?
Professional 401(k) management typically includes ongoing portfolio monitoring, asset allocation recommendations, periodic rebalancing, investment selection, risk management, retirement planning, and coordination with your broader financial plan. Some Registered Investment Advisers (RIAs) can also professionally manage employer-sponsored retirement accounts directly through secure platforms, allowing investors to retain their existing 401(k) while receiving customized investment management without requiring a rollover.
Q: Who is most likely to benefit from professional management of a 401(k)?
Professional management may be especially valuable for individuals with significant retirement assets, multiple retirement accounts, complex financial situations, limited investment experience, or little time to actively monitor their portfolios. It can also benefit investors approaching retirement who need to balance growth with income generation and risk management. While experienced do-it-yourself investors may successfully manage their own portfolios, many individuals appreciate the discipline, expertise, and comprehensive planning that professional guidance can provide throughout changing market conditions and life events.
