Self-directed 401(k) participants saw balances drop in 2022

The average account balance for self-directed brokerage accounts (SDBAs) closed down 20.6% year over year at the end of 2022 at $280,099, although that was up 2.45% from the third quarter of 2022, according to Charles Schwab’s SDBA Indicators Report. Schwab indicated year-over-year returns remained negative for the fourth consecutive quarter, consistent with the market overall.

“There weren’t any big surprises in last quarter’s findings, and participants were happy to see an increase in their SDBA balances from Q3 2022, reflecting somewhat of a reprieve for savers after a difficult year in the markets,” said Robert Jesch, product director, Schwab Retirement Business Services. “It was also encouraging to see that participants held asset allocations steady in a sign of continued resilience. We typically find that SDBA trends tend to reflect the larger market environment, and we continued to see that in Q4 2022.”

SDBAs are brokerage accounts that sit within retirement plans like 401(k)s and allow participants to invest retirement savings in individual stocks and bonds, ETFs, mutual funds, and a range of other securities that are not available in their retirement plan’s core investment offerings. Participants can invest through their SDBAs in addition to taking advantage of their plan’s core offerings.

According to the report, participant holdings were similar to the third quarter, with equities remaining the largest holding at 31.3%. Information Technology was the largest equity sector holding and the top equities were Apple, Tesla, Amazon and Microsoft. Mutual funds were the second-largest holding at 29.4%, with the largest allocation going to large-cap stock funds followed by taxable bonds and international funds. In third place were ETFs at 22.1% of participant assets. Among ETFs, investors continued to allocate the most to U.S. equity, followed by fixed income, international equity and sector ETFs.

Related: Holding pattern: Employees don’t expect to make any changes to their 401(k)s in 2023

In addition, trading volumes were lower at 9.6 trades per account compared with 10.6 trades per account during the third quarter. Advised accounts held higher average account balances at $459,438.

Participants who used advisors displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities, with Apple being the top one for everyone, the report found. Advised participants only had 8.01% of their equity assets with Apple, while non-advised participants had 13.03%. Advised participants also had a lower percentage in cash, similar to last quarter at 6% vs. 17.29% for non-advised participants.

Gen X made up 46.2% of SDBA participants, followed by baby boomers at 28.7% and millennials at 19.5%. Baby boomers had the highest SDBA balances at an average of $453,554, followed by Gen X at $252,171 and millennials at $85,446.

Industrywide, approximately between 5 and 10% of participants use an SDBA if it is offered in their plan, said Jesch.

“Savers increasingly crave more choice when it comes to their investments and may not be aware that an SDBA could satisfy their preferences given the wider range of offerings compared to a traditional core menu,” he said. “Plan sponsors and advisors have an opportunity to meet workers needs by raising awareness about SDBAs for a more personalized, hands-on investing experience. As with all retirement plan offerings, comprehensive education for participants is key. Plan sponsors and advisors can equip participants with resources explaining the different options available in their plans and best practices for utilizing them.”

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.