Four years after it first introduced self-directed brokerage options for retirement plan participants, Principal Financial Group is getting ready to make the service available to many more customers and much smaller plans.
Christopher J. Bowman, a vice president in Principals retirement services group, said the Des Moines companys revamped self-directed brokerage account, which will roll out in April, will now be available to Principal-sponsored plans with $1 million or more of assets. Until now, it was only available to plans with $10 million or more.
Only about 1,000 plans met the $10 million threshold, and about 20 had used the account. The new plan will enable about 7,000 of Principals 45,000 plans to qualify, Mr. Bowman said. Each plan member who uses the brokerage services will pay a $75 annual charge for access and a $25 per-trade fee.
Principals plan already enables a participant to put money from a paycheck directly into a brokerage account. The procedure with most self-directed accounts requires that the money go into the plan offerers investments, and then be transferred into a money market fund before trading can begin an unwieldy and often time-consuming process.
The revamped Principal service will also add investment research capability for plan participants.
Principal is able to broaden its reach because of its link, announced Tuesday, to the Omaha-based online broker Ameritrade Holding Corp. An Ameritrade subsidiary will take over the clearing and trade-execution functions, which will make the self-directed brokerage less labor-intensive and thus more profitable, Mr. Bowman said. Principal, however, will still use its own broker-dealer for trading, he said.
While self-directed brokerage options have not found widespread use among retirement participants, demand has been sufficient to convince many plan providers that they should offer the service, observers said.
According to Hewitt Associates LLC, a consulting and employee benefits firm in Lincolnshire, Ill., employee demand is prompting a growing number of employers to offer self-directed brokerage options with their 401(k) plans. In a survey of 290 U.S. employers with 401(k) asset values ranging from $1 million to $11.7 billion, 55% said they currently offered, would add, or were considering adding a self-directed brokerage account in the next 18 months.
Joshua Dietch, a consultant at Cerulli Associates Inc. in Boston, said Principals platform will set it apart from other plan providers. Few, if any, have integrated self-directed brokerage accounts into retirement plans along with other investment options, he said.
According to Cerulli, 14% of plan sponsors offered self-directed accounts last year.
Though few retirement plan participants opt to direct their own investments, the option appeals to a small but vocal group in most plans, and that makes Principals offering pretty significant, Mr. Dietch said.
One of the big things about these accounts is convenience, and theyre making it more convenient, he said.
