More Plans Offer Brokerage Option, But Few Takers

June 18, 2001 ( - A growing number of employers are offering a self-directed brokerage option, despite the fact that only a small minority of participants actually take advantage of the feature.

While more than half (55%) of companies surveyed currently offer, will add or are considering adding the option within the next 18 months, only 6% of participants are using the feature, according to a new study, Self-Directed Brokerage Accounts and Fund Windows in 401(k) Plans 2001, by Hewitt Associates. That usage rate is in line with employer expectations when offering the option, according to Hewitt.

The median percent of total plan assets invested in brokerage accounts is 10%, while the median account balance of participants using the option is $200,000.

Of those plans with the option currently in place, about a third have added it in the past year.

Nearly all (89%) of those actively considering the option will offer the ability to trade individual securities as well as mutual funds.

Most companies (81%) report that there is an annual maintenance fee associated with the self-directed brokerage account, with a median fee of $100.

Why Not?

A significant number of employers (45%) have no plans to introduce the option for a variety of reasons. Nearly a third were concerned that employees would make poor investment choices, while 26% indicated that there was an insufficient participant demand for the feature, and 14% anticipated a lack of usage by participants.

Window Dressing

On the other hand, the report indicates that just 25% of employers currently offer the less expansive mutual fund “window” ? or plan to do so within the next 18 months. 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.

Among the 75% percent of companies that do not intend to offer a fund window, 61% say there is little or no demand from participants. In addition, 23% say they already offer a self-directed brokerage account that meets participants’ needs.

The study represents 290 plan sponsors in the US with a combined total of approximately two million plan participants and $105 billion in assets. Asset values ranged from $1 million to $11.7 billion.

– Nevin Adams