In my reading this week, another article popped up on the dire circumstances of self-directed brokerage account options found on company 401(k) retirement plan account menus.
A plansponsor.com article titled, “Considerations for Offering SDBAs in Retirement Plans” is just another financial advice industry attempt to protect investment advisor annual compensation.
Even a reference to the most recent Charles Schwab “SDBA Indicators Report” does not deter the author. Or the investment professionals quoted in the article. Both parties go out of their way to criticize the SDBA brokerage account option.
You want self-dealing and conflicts of interest in a company 401(k) plan? The investment advisors who set up company 401(k) retirement plan accounts are compensated on the amount of 401(k) participant money invested in the main menu mutual funds.
Main menu company 401(k) retirement plan mutual funds pay the annual fees of these investment professionals. Any individual company 401(k) retirement plan participants who invested in a SDBA lower their annual compensation. I read that as the main reason for their criticism.
I have been providing investment advice to individual company 401(k) retirement plan participants since 1999. I have never, ever read an “industry publication” that recommends the use of a company 401(k) retirement plan SDBA account option.
Did you read the quote about the mere low utilization rate of SDBA accounts?
Absolutely correct. The reason is that neither the company 401(k) retirement plan sponsor (your company) or the company 401(k) retirement plan provider (Fidelity, Schwab, Vanguard, etc.) wants individual company 401(k) retirement plan participants to invest a significant amount of their 401(k) account balances in a SDBA account.
Again, company 401(k) retirement plan providers earn lower compensation levels when money leaves the main menu of mutual fund options.
Main menu mutual fund options “pay the bills” in company 401(k) retirement plan accounts. Why do you think the “buy-and-hold” company 401(k) retirement plan account investment management is so strongly promoted by mutual fund companies?
SDBA accounts offer a wider and much less conflicted choice of better-performing and lower cost company 401(k) investment options. Neither of these SDBA account benefits is of interest to company 401(k) retirement plan provider.
Those are the unbiased and non-conflicted facts. You want to challenge me? You have my contact information on this web site.
In this day and age, sophisticated company 401(k) retirement plan investment advice is widely available. You don’t have to be a high-level executive to improve your company 401(k) retirement plan options and investment management decisions.
Don’t be scared off from looking into a company 401(k) retirement plan SDBA account option by some self-interested investment advisors. Or by some ERISA attorneys that represent the company 401(k) retirement plan sponsors.
Read the Schwab SDBA study and make your own decisions.
Ric Lager
Lager & Company, Inc.
