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Financial Planning > Charitable Giving > Donor Advised Funds

Self-Directed 401(k) Investors Fare Better With Advice: Schwab

By Juliette Fairley

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Investors under advisement who participate in Self-Directed Brokerage Accounts (SBDA) within their workplace retirement plans maintain almost double the balance of the non-advised and engage in nearly twice as many trades, according to new data.

The Charles Schwab SDBA Indicators Report found that the average participant balance for advised accounts is $436,593, up from $402,866 last quarter, compared with $227,334 for non-advised IRA and 401(k) self-directed accounts.

That’s because there is a multitude of benefits to working with an advisor that can result in a higher balance, according to Mike Peterson, director of corporate public relations at Schwab in Ohio.

“Someone who has an advised account versus a non-advised account will likely have more diversification in their holdings and advisors are likely to frequently rebalance clients’ portfolios,” he said.

Overall, trading volume remains similar to last quarter and to last year, but those with advised accounts showed a total of 10.3 average trades compared with only 5.6 for non-advised accounts.

The report surveys some 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account through March 31, according to Charles Schwab.

The study further found 41% of participants are Gen Xers, 40% are baby boomers and 12% are millennials. Boomers and Gen Xers made up 44% and 43.2% of advised account holders, respectively; while millennials made up 9.2%. When it comes to mobile trades, millennials and Gen Xers lead at 21%, compared with 14% for their older counterparts.

Largely 37% of all participant assets were invested in mutual funds, 29% in equities, 17% in exchange-traded funds; 13% hold cash and 3% invest in fixed income, with advised participants showing more diversity and a lower concentration of assets in particular securities.

For example, 5.04% of advised participants hold cash, compared with 16.7% of the non-advised.

“Advisors typically keep clients’ cash allocations low while individual investors leave more of their SDBA in cash pending investment decisions,” Peterson told ThinkAdvisor.

Some 6.1% of advised participants hold equity assets in Apple compared with 9.82% of the non-advised, and advised participants hold no more than 3.6% in any one ETF.

Top ETF and mutual funds among the advised include the Vanguard Total Stock Market ETF, Schwab International, iShares Core S&P 500 and the Schwab S&P 500 Index. Across all categories, participants make the most trades in their equity holdings, information technology is the largest equity sector holding at 24.5%, mutual funds hold the biggest share of participant assets at 37.3%, and large-cap stock funds have the largest allocation at 28.93%.

The average balance of Roth PCRA account holders, at $66,315, is lower than $267,609 for non-Roth PCRA holders, with Gen Xers holding the most Roth accounts as a percentage of accounts in their respective generations. Roth accounts also have lower trade volumes at 3.8 vs. 6.5.

While non-Roth account holders’ equity selections are standard across all stocks, such as Apple, Amazon and Berkshire Hathaway, the Roth PCRA accounts continue to hold Glenview Offshore equity at the top, followed by Amazon and Apple.

Juliette Fairley

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