Retirement investors working with advisors generally displayed more disciplined investing behavior than other types of investors, according to a recent study of self-directed brokerage accounts by Charles Schwab. Investors with “advised accounts” tended to have a more diversified asset mix, more balanced portfolios and a lower percentage in cash than their advisor-free counterparts did. Here’s what advisors should know.
Advisors’ Impact on Self-Directed Brokerage Accounts
Schwab’s “SDBA Indicators Report” reviews self-directed brokerage account (SDBA) activity for the second quarter of 2022. It surveys differences in investing behavior between various age groups and account types. Notably, Schwab compared “advised accounts,” which registered investment advisors (RIAs) manage on clients’ behalf, to “non-advised accounts,” which don’t include RIA management. Key differences included these:
- Higher balances. For advised accounts, the average SDBA balance fell to $460,376 in Q2 2022 from $525,254 in the first quarter, a 12.35% decline. Meanwhile, non-advised accounts sank to $240,974 from $286,008, a 15.74% decline.
- More diversification. Investors using RIA advisors displayed a more diverse asset allocation mix. They also dedicated a lower concentration of assets to individual securities. For example, Apple Inc. was the most popular stock for investors in the study. But advisor-led accounts had 8.75% of the equity allocation in that stock, while no-advisor accounts dedicated 12.84% of their equity assets to Apple.
- Better balance. When it comes to exchange-traded funds (ETFs), advisor-directed funds demonstrated stronger balance, with no more than 3.89% in any single ETF, Schwab says. Advisors chose Schwab’s S&P 500 index fund as their top fund holding and Dimensional Fund Advisors as a top fund family. Advisor-led accounts recorded a 17.25% mutual fund asset allocation. Non-advised participants favored Schwab’s S&P 500 index fund among mutual funds. And 20.10% of the mutual fund asset allocation went to the Schwab fund family.
- Less cash, even during a market selloff. Advised SDBA investors carried 7.05% of their SDBAs in cash. Meanwhile, non-advised participants allocated 18.91% toward cash.
Notably, about half of Generation X investors chose to have advisor-assisted accounts. That’s the most among any generation, including millennials (15.4%) and Baby Boomers (31.5%).
What Are Self-Directed Brokerage Accounts (SDBAs)?
Schwab defines SDBAs as brokerage accounts within retirement plans that savers can use to invest in stocks, bonds, ETFs, mutual funds and other securities that are not part of their investment plan’s core investment menu. Individual equities made up the largest share of participant holdings in these accounts for the second quarter of 2022.
According to Schwab, the “SDBA Indicators Report” collects data from about 184,000 retirement plan participants with balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Accounts.
What Advisors Should Know
When it comes to overall SDBA trends for the second quarter of 2022, advisor-led accounts appeared to display more diversification, greater balance and less money in cash than non-advisor-led accounts.
Financial advisors may find opportunities in helping clients manage a self-directed brokerage account.
“If they haven’t already done so, advisors should ask clients if their workplace retirement plan offers an SDBA and then evaluate the opportunity to manage the client’s plan assets through the SDBA,” says Nathan Voris, director of Investments, Insights and Consultant Services at Schwab Retirement Plan Services, in a statement to SmartAsset.
While SDBAs fell in value along with the market selloff in the second quarter of 2022, accounts with RIA advisors tended to display better behavior. Advisors may have kept investors from enacting certain panicked behaviors, such as fleeing to cash or overexposing their portfolios to individual equities.
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