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Schwab: Advised Brokerage Accounts Have Higher Balances, Better Diversification

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Retirement plan participants who have a self-directed brokerage account and work with a financial advisor had better outcomes than non-advised participants, according to Charles Schwab’s latest SDBA indicators report, released Tuesday.

Participants who worked with an advisor had higher balances, a more diversified asset allocation mix and less exposure to individual stocks than other participants.

SDBAs are brokerage accounts within retirement plans that participants can use to invest in stocks, bonds, exchange-traded funds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

The report included data collected from some 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab personal choice retirement account. Data are extracted quarterly on all accounts that are open as of quarter-end and meet the balance criteria.

Although only 19% of SDBA participants chose to use an advisor, they reported an average balance of $449,552, compared with $234,643 reported by non-advised participants.

In advised accounts, participants allocated approximately half of their portfolios to mutual funds. ETFs followed with a 22% allocation, equities 20%, fixed income 4% and cash 4%.

For non-advised participants, the allocations were 35% individual equities, 32% mutual funds, 16% cash, 15% ETFs and 2% fixed income.

The top three equity holdings for both advised and non-advised participants were Apple, Amazon and Berkshire Hathaway; however, non-advised participants’ positions in Apple and Amazon were nearly double those of participants who used an advisor:

  • Apple: 10.9% vs. 5.8%
  • Amazon: 7.8% vs. 3.5%
  • Berkshire Hathaway: 2.4% vs. 2.8%

In addition, advised participants invested in more blue-chip, value companies, such as Johnson & Johnson and JPMorgan Chase & Co., whereas self-directed investors allocated to more growth stocks, including Nvidia and Netflix.

“The report highlights the benefits of working with an advisor,” Larry Bohrer, vice president for corporate brokerage retirement services at Charles Schwab, said in a statement. “In general, participants who had professional help were more diversified across all of their holdings.

“In addition, advisors typically rebalance a portfolio more often and keep their clients invested.”

Schwab noted that payroll contributions into SDBAs are generally allocated to cash. From there, it is up to the participant or advisor to invest.

The report showed that advisors kept clients’ cash allocations low, while individual investors left more of their SDBA in cash pending investment decisions.

Average Balances, Trades

According to the latest report, the average SDBA account balance for all participants in the third quarter was $265,902, up 3.5% from the second quarter and up 24% from last year’s third quarter.

In the July-to-September period, advised accounts averaged 9.5 trades, compared with 5.5 trades by non-advised participants.

Baby boomers represented the majority of advised accounts at 45.4%, followed by Gen Xers at 42.2% and millennials at 8.5%.


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