Self Directed Brokerage Usage

[Guest Ken_Systems]

Does anybody have experience with Qualified plans that offer Self Directed Investments to participants?

Can you tell me what percentage of participants use Brokerage Services?

Is this percentage influenced by plan size?

Thanks in advance.

[Alan Simpson]

We currently have plans that have participants using the recommended investments and some who self-direct. While we do offer self-direction to our clients, the only participants who tend to use it are those with large account balances.

Please be aware, that while this is a valid way to operate a plan, if one participant is able to self-direct then all participants are able to self-direct. If a participant decides to use the funds recommended for the plan then their investment election form includes a statement indicating that they know they are able to self-direct but have chosen not to do so at that time.

As with all plans, the Trustee/fiduciary is responsible. Therefore, it is important for the Trustees to verify the capabilities of the individuals who would be handling the transactions. They may wish to provide a policy to review the investment firm/broker before allowing them to handle the transactions for a self-directed account. One disadvantage of self-directing it that you do not have control over the transactions until such time as they have already occurred. This could put the plan in jeopardy if prohibited transactions occur, or are made in investment that are not allowed within the plan (whether by regulations or plan investment policy). Hence the review of the firm/broker and their capabilities to follow the plan investment guidelines.

Another disadvantage is that this could increase the recordkeeping costs to the plan since their will be more time spent on reconciling transactions occurring in the self-directed accounts.

[Guest Ken_Systems]

Thanks, but I'm looking for an actual percentage of participants who choose to use Self Directed. I understand this varies from plan to plan; does anyone have any statistics?

I'm also curious what percentage of participant balances are invested in Self Directed. I have been told that only executive types use Self Directed, and tend to put a high % of their assets in Brokerage accounts. Is this true?

[Guest halka]

Tricky question... Don’t really know of published statistics. We provide a self-directed option in a number of plans. While an average is not very useful – in our plans about 50% of participants go for an SDO. Our SDO plans tend to be for companies w/ a high percentage of professionals – in a manufacturing company % would be lower. Some plans require all-or-nothing SDO, others permit blend of SDO & plan investments. Generally, SDO appeals to higher balance participants. However, there is risk that the internet day-trading mentality may infect a participant at any level with resulting liability to Plan Administrator. Hence, the importance of Alan’s comments.

[Guest Elaine Levin]

I manage the benefits for a 650 physician group. Our 401k is 100% self directed, but we are in the process of changing to a plan that provides a a core of about 20 mutuals and a brokerage window for those who want it. The plan has been impossible to manage because I can't get any plan level information. We're treated like 650 individual accounts, and pay the fees that go along with it. Not all skilled physicians understand risk tollerance or the basics of investing!!! I'm also concerned that we have not been meeting our fiduciary responsibilities as a plan by offering this. Does anyone know where I can find a checklist of these responsibilities?

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Elaine