What You Need to Know
- Today, 65% of defined contribution plans with more than $1 billion in assets offer access to brokerage accounts.
- The average age of participants using the brokerage account is higher than average because older participants generally have higher incomes and balances.
- The analysis shows 401(k) assets are still largely invested for long-term growth, especially among plans that offer default investments and other professionally managed solutions.
While there seem to be more news headlines focused on retail investors day-trading stocks, bonds, cryptocurrencies and other speculative assets, it’s not clear how prominent day trading is in defined contribution (DC) plans today.
In some new research with Zhikun Liu, director of research at Empower Retirement, we tackle this topic with a particular focus on utilization of the self-directed brokerage window.
Surveying roughly 4.5 million participants and 85,000 defined contribution (DC) plans, we find that only about 40% of participants had access to brokerage accounts, and of those, only roughly 1.5% used the feature, which equates to approximately 0.6% of all participants in the survey.
There is a notable difference in the availability of brokerage accounts by plan size, though. Less than 5% of plans with assets below $10 million offered access to brokerage accounts, while over 65% of plans above $1 billion in assets offered this feature. Interestingly, there isn’t much difference in terms of utilization of the brokerage window among participants when it’s available.
What Your Peers Are Reading
There are some notable differences in the demographics of participants who are using brokerage windows, which is somewhat counter to the media coverage of day trading (which has increasingly focused on younger investors). In DC plans, income and balance tend to be the predominant indicator of those who are likely to use the brokerage window, and participants skew older.