A SDBA, or Self-Directed Brokerage Account, is a window inside a company-sponsored retirement plan (401(k), 403(b), 457, etc.) which offers plan participants the option to invest in more than the pre-selected company choices.
Basic Account vs. Brokerage Account
The basic account of the company retirement plan provides:
- Access to pre-selected investment options chosen by the company
- No access to or limited personalized advice
- No access to or limited 3rd party active management
Participants of the company-sponsored retirement plan allocate their retirement savings amongst the pre-selected investment options and implement a more passive strategy with infrequent updates to the allocation.
The self-directed brokerage account (SDBA) of the company plan provides:
- Access to greater investment options, diversification and control over your retirement plan
- Access to personalized advice
- Access to professional money management, stocks, bonds, mutual funds, and ETF’s
Company plans that offer a SDBA allow participants the ability to move their assets, tax and penalty-free, into a brokerage account and choose from a larger selection of investment options. Participant assets remain in the retirement plan; they are not rolled over and there is no taxable event.
The run-up in the markets the last several years has provided participants of company-sponsored retirement plans, especially long-tenured employees, with substantial account balances. A 2014 study published by Financial Engines/AON Hewitt reported that the annual median performance gap return between participants that had help (typically associated with a SDBA) and participants that did not have help was 3.32%, net of fees (over the period 2006-2012).
If your employer-sponsored retirement plan is administered by Charles Schwab or Fidelity, the SDBA window, if available, is known as the Personal Choice Retirement Account (PCRA) and BrokerageLink, respectively.
Participants unfamiliar with a SDBA but interested to know more should contact your plan sponsor (human resources or benefits department) to determine if you are eligible to open a SDBA.