A new analysis of brokerage account usage in DC plans finds that participants taking advantage of the option are older, have more than twice the tenure, and have much larger balances than other participants.
However, the report, based on plans record kept by Vanguard, notes that fewer than 10,000 of the 3.6 million participants on their proprietary record keeping platform use the option, and that 10% of plans offering the brokerage option have no participants using the feature.
Among those who do, Vanguard noted that brokerage participants are 6 years older and disproportionately male compared with the Vanguard universe. Moreover, those participants contacted Vanguard much more frequently than all participants did — with a median contact rate of 66 times in 2014, compared with only two contacts in 2014 for all participants.
The authors of the report said that the most striking difference between brokerage participants and all participants is their account balances, with a median brokerage account balance of $262,000 — more than eight times larger than the median Vanguard account balance of $30,000. (It should be noted, however, that longer-tenured participants tend to have larger balances.)
Plan Designs
In 2014, 16% of Vanguard plans offered a self-directed brokerage option (28% of Vanguard plan participants had access to the option). Twenty-two percent of plans with a brokerage option were law firms; on average, 7% of law firm plan assets were invested in brokerage options.
Larger plans are somewhat more likely to offer the brokerage option. However, smaller firms have a higher proportion of plan assets invested in the brokerage option. Eight in 10 plans offering participants a brokerage feature that permits participants to invest in any investment option, while one in five plans restricts the brokerage feature to mutual funds only. Half of the plans do not limit or cap the proportion of the participant account balance that can be invested in the brokerage option, while half of the plans do impose a limit or cap. The most common cap is 50% of the participant account balance.
Participant Usage
As for what they do with their accounts, Vanguard notes that, on average, brokerage participants invest 45% of their account balance in the brokerage option, though the allocation to brokerage varies from 10% or less (18% of brokerage participants) to more than 90% (15% of participants).
What do brokerage participants invest in? The most common holding — more than half of brokerage participants and assets — is a mutual fund, followed by stocks. One in five brokerage participants holds an exchange-traded fund (ETF). The most commonly held individual stock is Apple Inc., followed by Berkshire Hathaway and Bank of America Corp.
