For the few DC plan members who use self-directed brokerage accounts, research shows they are older, have longer jobs, and earn higher wages than their peers.
These brokerage accounts provide investment choices for “sophisticated plan members” and “allow sponsors to keep their core ranges simple,” said Alison Borland, executive vice president of wealth management solutions and strategy at Alight Solutions Inc., based in San Francisco in its June 24th. testimony before the ERISA Advisory Board, which solicits public comment on brokerage accounts.
Among the highlights of Ms Borland’s testimony was Alight’s 2019 research which showed:
- The percentage of participants using brokerage accounts increased by age group, reaching 3.7% for those 50-59 and falling to 2.9% for those 60 and over. For the 20-29 age group, only 0.4% used a brokerage account.
- Brokerage account balances increased steadily with age: the average balance was $ 326,460 for participants aged 60 and over compared to $ 297,340 for the 50-59 age group and $ 25,410 for participants. aged 20 to 29.
- Greater use of brokerage accounts correlated with higher salary: 5.7% of participants used the accounts if their annual salary was $ 100,000 or more, versus 2.9% for those earning $ 80,000 at $ 99,999, the second highest percentage of investors, and less than 1% for participants earning less than $ 40,000.
According to Ms. Borland’s testimony, the percentage of DC plans offering self-directed brokerage accounts increased to 46% in 2019 from 12% in 2001. The results are taken from a survey conducted every two years that is not limited to to Alight customers. . The 2019 survey looked at 240 sponsors with a total of 8.5 million employees and more than $ 725 billion in retirement account assets.
A separate Alight study of DC plan activity, published in 2021 and covering 100 clients with 3 million eligible participants, found that only 2.4% of participants used brokerage accounts last year, compared to 2.2% in 2019 and 2.3% in 2018.
A study by Vanguard Group Inc., Malvern, Pa., Showed that 20% of the company’s record-keeping clients offered self-directed brokerage accounts last year. These plans served 33% of the 4.7 million participants covered by Vanguard.
This Vanguard research report, released in May 2021, found that only 1% of participants eligible for a brokerage account had invested in it. Vanguard found that the median age of brokerage account users was 50 compared to a median age of 44 for all Vanguard participants. The median age of brokerage account users was 14 years compared to a median age of 7 years for all Vanguard participants.
The median brokerage account balance was $ 264,049 compared to the median Vanguard account balance of $ 33,472, a difference the Vanguard report called “striking.”
