Close Close

Retirement Planning > Retirement Investing

How to Protect Clients’ 401(k)s in Messy Markets

Your article was successfully shared with the contacts you provided.

Here we are again, ladies and gentlemen. Right back in the middle of another big stock market decline. Your clients now have another opportunity to lose giant amounts of money in their company 401(k) retirement plan accounts.

But all is not lost. You can successfully navigate the current stock market selloff to expand your household assets under management to include company 401(k) retirement plan assets.  

In a previous era, only doctors, lawyers and a few Fortune 500 executives could buy any investment they wanted in their company retirement plan account. Most individual investors had to settle for an expensive and poor-performing menu of mutual funds.

Times have changed. Today’s modern technology provides the opportunity for your investment advisory practice to change along with them.

Your client’s inattention and lack of professional investment advice is a perfect recipe for a repeat of the 2008-2009 stock market disaster. However, your best client’s six-figure company 401(k) retirement plan account balances can be improved with your guidance and expertise.

Company 401(k) retirement plans offer a core group of mutual funds, a collection of target date retirement funds but often a self-directed brokerage window as well. The best single way to improve the company 401(k) retirement plan experience for your best clients is to urge them to take advantage of the self-directed brokerage option.  

I would be willing to bet that even your most sophisticated clients don’t know off the top of their heads if they have a self-directed brokerage account, or SDBA, option available in their company 401(k) retirement plan account. This company retirement plan feature is exactly the kind of information that never gets read in quarterly email updates from the human resources department.

Your current clients would very much welcome your invitation to analyze their current company retirement plan main mutual fund menu. The same goes for finding out if they have an SDBA option available to them.

And here’s a prospecting tip: If your clients don’t know about an SDBA company 401(k) retirement plan account option, where do you think other individuals at the same company stand? Your current clients can become the best referral source in your career when you get to know their company 401(k) retirement plan account menu and features.

You can likely manage your client’s company 401(k) retirement plan account just like a regular brokerage account. The SDBA account allows your company 401(k) retirement plan participant clients to work with a third-party investment advisor. You may be able to view, trade and bill your advisory fees to the SDBA account.

The SDBA allows low-cost index mutual funds and ETFs. At a minimum, there is an expanded menu of mutual funds available. Your client can also buy individual stocks if he or she wants to take on the additional stock market risk.

The self-directed brokerage account option is the best company 401(k) retirement plan offering available today. The SDBA account lowers annual expenses, provides access to low-cost mutual or exchange-traded funds and gives investors access to independent third-party investment advice.  

There are required disclosures about the fees and expenses associated with self-directed brokerage accounts within a company 401(k) retirement plan. There may be annual account maintenance fees and a per-trade fee.

I have seen annual SDBA fees in the $50-to-$100 range. SDBA providers like Schwab and Fidelity usually charge trading fees of $7.95-$25 per trade. You don’t really know these numbers until your client contacts their company SDBA provider and asks the questions.  

Schwab’s self-directed brokerage account option, available for company retirement plans, is referred to as the Schwab Personal Choice Retirement Account, or PCRA. Fidelity calls the self-directed brokerage accounts in its company retirement plans Fidelity BrokerageLink accounts.

I have worked with SDBA accounts in company 401(k) retirement plans for over 17 years. I can’t remember an example of investment advisory fees, annual fees and trading costs standing in the way of an individual investor making a decision to work with a trusted investment advisor.

— Related on ThinkAdvisor:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.