PLANSPONSOR - October/November 2019 - 18

Upfront
SDBAs Will Produce if Conditions Are Ripe
brokerage window were the ones who
lost money, even when the market was
going gangbusters, " he recalls.
So, what do sponsors need to know if
they want to provide this option? According
to " Fiduciary Considerations in Offering a
Brokerage Window, " a paper by Fred Reish
and Bruce Ashton, partners in Drinker
Biddle & Reath LLP, " Deciding to offer
a brokerage window is a fiduciary decision,
[but] there is little guidance on the
considerations a fiduciary should use in
making the decision. The considerations
for deciding whether to offer a brokerage
window have not been specified in the law
or by the Department of Labor (DOL). "
Still, the lawyers wrote, if a sponsor
offers one, it should be made available to
all participants, and the sponsor should
" consider the investment sophistication of
the employee population and/or whether
any employees desire to work with investment
advisers who could assist them in
investing through a brokerage window. "
The paper says the sponsor should
A RECENT report might give plan sponsors
reason to think about providing a
self-directed brokerage account (SDBA)-
especially one that gives participants the
services of an adviser.
Research for Charles Schwab's " SDBA
Indicators Report " found that, while only
20% of participants in a brokerage window
worked with an adviser, their average
balance, as of this year's second quarter,
was $448,515-nearly twice the $234,673
held by non-advised participants. And, in
its first-quarter report, Schwab wrote that
participants who used advisers displayed
a more diversified asset-allocation mix
and had a lower concentration of assets in
particular securities.
Based on findings from the 2019
PLANSPONSOR Defined Contribution
(DC) Survey: Plan Benchmarking,
20.3% of all employers offer self-directed
brokerage accounts. Yet, many retirement
plan advisers are leery of the accounts
because they think participant investors
are not sophisticated enough to make
successful individual trades.
Eric Droblyen, president and CEO
of Employee Fiduciary LLC, is one of
that opinion. He worked at Schwab in
the 1990s, when it was the first financial
services firm to offer its workers a
brokerage window. " [Participants] in the
18 PLANSPONSOR.com October - November 2019
Art by Claudi Kessels
also ask its participants to honestly weigh
their investment sophistication before
participating in a brokerage window and
should advise them that the plan's fiduciaries
will not be selecting or monitoring the
investments available in the window.
The workers for whom brokerage
windows are typically most appropriate,
Droblyen notes, are professionals such as
doctors and lawyers who are highly paid.
However, says James Veneruso, a
senior vice president at Callan, " We find
utilization of brokerage windows tends
to be very low, and, even when [one] is
offered, they account for a mere 5.3%
of plan assets. " The reason some sponsors
offer brokerage windows is to avoid
having too large of a fund lineup, he says.
As to the selection of a brokerage
window provider, the DOL has been
specific, the lawyers wrote, and they
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PLANSPONSOR - October/November 2019

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