Brokerage accounts within defined contribution plans are not for everyone. In fact, relatively few, 16%, of plans administered by Vanguard offer them. And only 1% of participants of all plans administered by Vanguard last year who had the opportunity to invest in a brokerage plan actually did so. But a closer look at data compiled by Vanguard does not suggest sponsors are likely to drop the option.

Vanguard’s large database – 1,900 plans covering 3.6 million participants –may be a fair proxy for the larger participant universe.

Although only 16% of sponsors in Vanguard’s database offer a brokerage option, 28% of all Vanguard participants have the opportunity to use a brokerage account.

Also see: Are self-directed brokerage accounts making a comeback?

Brokerage account utilization rates are much higher in small companies than large. For example, 8.8% of participants in plans with fewer than 100 participants use a brokerage account, in contrast to only 1.2% at companies with at least 5,000 participants.

User demographics

What kind of participant actually takes advantage of the chance to select from potentially thousands of investment options available through a brokerage account? The following demographic data contrasts brokerage-using participants with the overall participant pool:

  • Median age: 52 brokerage, 46 overall;
  • Median tenure with employer: 15 years, 7;
  • Percentage male: 80%, 59%;
  • Median account balance: $262,446, $29,603;
  • Median equity allocation: 83% (same for both);
  • Median number of annual contacts with Vanguard: 66, 2.

Notable in that set of statistics is the dominance of male participants, as well as the huge disparity in median account sizes. Also, the fact that half of participants with brokerage accounts interact Vanguard at least 66 times a year suggests a high degree of attention and active management of their plan assets.
Individual securities

Of plans with a brokerage option, the vast majority (81%) allow participants to invest in individual securities, versus 19% that limit them to mutual funds. About half of plans put a ceiling (typically 50%) on the proportion of participant accounts that can be invested through the brokerage window, and the median participant allocation of their funds to investments purchased via the brokerage window is 39%, according to Vanguard.

Mutual funds claim 53% of brokerage assets, followed by individual stocks (21%), cash (14%), ETFs (11%), and individual bonds (1%).

Also see: DOL ponders more guidance on 401(k) brokerage account windows

The most popular individual holdings are the Vanguard Health Care Fund, the Vanguard Dividend Growth Fund and the Vanguard Short-Term Investment Grade Fund. The most commonly held ETFs, all from Vanguard, were the Dividend Appreciation ETF, Total Stock Market and the S&P 500 ETFs.

Individual stocks most widely held were Apple, Berkshire Hathaway and Bank of America.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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