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Many in today’s workforce have become dissatisfied with their company’s retirement plan. This concern can be significant as their retirement plan may represent their largest financial asset. The issue with company 401(k)s, 403(b)s, or 457 accounts, is that these plans can be very limited in two significant ways.
These constraints can have a negative effect on returns and the associated risk taken related to the returns. (Please see Schwab Study discussed below.)
However, there is a potential remedy to this problem, and chances are your plan already offers it. Employees may not be aware of it because your employer and the employer’s plan administrator have no incentive to advertise the solution. What is this hidden solution? It is a Self-Directed Brokerage Account (SDBA).
Many larger and some smaller plans offer this option. Essentially, a brokerage account can be set up as part of the 401(k). This works well for the following reasons:
Schwab did a study in 2019 on SDBA participants that worked with an advisor. Here are their findings:
The important thing to remember is that SBDA accounts offer an opportunity to further diversify. Remember, there is a difference between effective and ineffective diversification. This is where a financial advisor can offer significant value. Contact us if you would like to take greater control of your company retirement plan.