Employer Interest in Self-Directed Brokerage Option Grows

March 12, 2001 (PLANSPONSOR.com) - More than half of employer respondents to a new Hewitt survey have considered, or are considering, adding a self-directed brokerage window for their 401(k) program over the next 18 months.

Of the 55% planning to add the accounts, fully 75% cited employee demand as the primary reason for considering the option.

Self-directed brokerage windows are generally structured as a separate fund option within the 401(k) that allows the participant to invest in a wide range of mutual funds, as well as individual stocks and bonds.  The windows frequently allow plan sponsors to impose some trading restrictions, and generally carry additional costs borne by the participants that use the option.

Not Interested

Of the nearly half (45%) not planning to offer self-directed brokerage, the following reasons were offered:

  • 32% – concern that participants would make poor investment choices
  • 26% – lack of demand from employees
  • 14% – anticipated lack of usage by participants

In fact, traditionally these programs have been most highly promoted and utilized by executive management, a trend that could change with the proliferation of lower-cost online brokerage retail options.

“Window” of Opportunity?

On the other hand, just a quarter (26%) of plan sponsor respondents have added, or are planning to add, the less expansive mutual fund window within the next 18 months.  Fully 74% have no plans to add the option, which is typically more limited than a full self-directed option.  Mutual fund windows generally limit the investment choices to mutual fund investments, albeit a selection much expanded from those generally offered to 401(k) participants.

The results came from Hewitt’s Self-Directed Brokerage Accounts and Fund Windows in 401(k) Plans Study 2000, representing the perspectives of 290 employers nationwide with 401(k) plans ranging in size from $1 million – $11.7 billion.

The full report will be available in April for $350 from the Hewitt Information Desk, 847-295-5000 or infodesk@hewitt.com .