Press Release
Hewitt Study Shows Employee Demand as Driving Force Behind Self-Directed Brokerage Accounts
If you're interested in expanding your 401k investment options speak up, because chances are your employer is listening. New research by Hewitt Associates, a global management consulting and employee benefits delivery firm, indicates that the majority of companies adding self-directed brokerage account
i options to their 401k plans do so to meet employee demand for additional flexibility and control.
Hewitt's research found that more than half (55 percent) of employers surveyed currently offer, will add or are considering adding a self-directed brokerage account within the next 18 months. Of those, 75 percent cited employee demand as the primary driver for the additional option.
"This surge in interest shows that employers are responding to employee demand for ultimate investment choice and control," said Stacy Schaus, defined contribution consultant, Hewitt Associates. "At the same time, the brokerage option takes pressure off the employer to continually add the next 'hot fund' or investment category. Self-directed brokerage allows employers to focus a plan's core investments around the needs of a broad participant base while still meeting the special fund requests of other employees. This institutional structure can translate into a more user-friendly environment for employees."
Hewitt's Self-Directed Brokerage Accounts and Fund Windows in 401k Plans Study 2000 represents 290 employers nationwide with 401k asset values ranging from $1 million - $11.7 billion.
Mutual Fund Windows Not As Popular
In contrast to self-directed brokerage accounts, Hewitt's study shows that mutual fund windowsii do not command the same level of interest from employers. Only 26 percent of companies surveyed currently offer, will add or are considering adding a mutual fund window within the next 18 months while nearly three-quarters (74 percent) do not intend to add one.
"While there are many advantages to mutual fund windows, it's clear that the majority of employers think self-directed brokerage accounts are more beneficial," said Schaus. "The self-directed option allows employers to open participants up to an investment world of possibilities rather than a limited set of funds in a mutual fund window."
Some Employers Not Jumping On Board
Despite the increased popularity of self-directed brokerage accounts, some employers (45 percent) do not intend to add this option. The top reason cited by employers for not offering this option is concern about employees making poor investment choices, such as market timing (32 percent). Other factors considered include insufficient demand by employees (26 percent) and unjustified cost or effort considering the company's anticipated low usage by employees (14 percent).
Communication, Education Are Key
With so many investment options to choose from in a self-directed account, will employees make the right decisions? Many employers have stepped up education efforts to address this concern with tools such as educational materials and investment advice provided by the broker, a financial advisor or an independent advice provider.
"A self-directed brokerage account is not a license to time the market," said Schaus. "These accounts can be powerful tools to help meet individual investment objectives, yet to be used wisely, employees need ample information to make educated investment decisions."
The full report, Self-Directed Brokerage Accounts and Fund Windows in 401k Plans 2000, will be available in April for $350 from the Hewitt Information Desk, 847-295-5000 or infodesk@hewitt.com. Members of the media may request a copy of the report from the Hewitt Public Relations department, 847-442-7663.
About Hewitt
Hewitt Associates LLC is a global management consulting and employee benefits delivery firm. Hewitt is the largest provider of benefit outsourcing programs and recorded 2000 firmwide revenues of nearly $1.3 billion. The firm delivers defined contribution programs to more than 4.3 million employees and partners with preferred provider CSFBdirect, one of the world's premier online brokerage firms, to offer IRA rollovers, brokerage defined contribution windows and other self-directed brokerage services to its clients.
iHewitt's study defines a self-directed brokerage account as a 401k investment option that allows employees to maintain some of their plan assets in a separate individual brokerage account for the purpose of holding unlimited stocks, bonds or mutual funds that are not offered as part of the plan's core investment options.
iiA mutual fund window is defined in Hewitt's study as a 401k investment option that allows participants to choose from a select and limited list of mutual funds, typically between 40 and 50 funds.
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