brokerage account window post preceded by LRPC's Plan Sponsor Insight image.

A number of 401k plans offer a self-directed brokerage account window option for plan participants. In order to be legal, the brokerage account window option has to be offered to all participants within the plan on a nondiscriminatory basis. In practice, few participants (less than 1% in most plans) tend to use the brokerage account window option. Is offering a brokerage window option a good idea? Most of the time, probably not. Here’s why:

Why They Don’t Make Sense

Executive interest only

Most of the interest in self-directed brokerage accounts tends to come from executives who can afford to purchase solid investment advice. These individuals could just as easily execute similar investment strategies more effectively using outside brokerage accounts, avoiding the limitations and restrictions imposed by retirement plans.

Conflict of interest

These executives are often convinced of the merits of a brokerage account window by their financial adviser, who may benefit financially from the use of a brokerage account window but not from investments in the plan. This is a clear conflict of interest that may not be beneficial to the executive.

Higher fiduciary liability

An employer’s fiduciary liability would appear to be much higher in a plan that offers brokerage account windows. The risk doesn’t necessarily stem from executives who are able to hire investment advisors, rather, it comes from those individuals who aren’t getting competent investment advice or are investing on their own without an adviser.

Brokerage account window can harm

Brokerage windows make it easier for unsophisticated investors to harm themselves. One of the benefits of investing in a 401k plan is the rigorous nature of the analysis applied to the investment options, the fiduciary procedure for selecting them and the types of investments allowed. None of this exists in a brokerage window situation where a participant could be receiving less than competent investment advice or investing on their own.

Greater due diligence

The Department of Labor opined that retirement plan fiduciaries must prudently select the providers of participant brokerage accounts (the broker-dealers). As with any other provider, this would include the evaluation of the various services and related costs. This would seem to make the practice of offering brokerage account windows much less appealing to the employer plan sponsor.

Where might a brokerage window option be most appropriate? In doctor or dental practice groups where the majority of the plan participants are either doctors or dentists able to purchase competent investment advice.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.