The value of financial advisors is shown in a Charles Schwab study of self-directed brokerage accounts in retirement plans released Tuesday.
Retirement savers who use an advisor to help them with their self-directed accounts have higher balances, a more diversified asset allocation mix and less exposure to individual stocks compared to non-advised participants, the report says.
Self-directed brokerage accounts are accounts held within retirement plans that investors can use to invest in stocks, bonds, ETFs, mutual funds and other securities that are not part of their retirement plan's core investment offerings. In the SBDA Indicators Report, Schwab tracked the performance of 137,000 Schwab retirement accounts and found that those investors who used an advisor did better than those not using an advisor.
Only 19 percent of those holding self-directed brokerage accounts use an advisor. However, they have an average balance of $449,552, nearly twice as much as the $234,643 reported by non-advised participants.
In advised accounts, mutual funds continued to hold the highest percentage of participant assets at approximately 50 percent. ETFs were the second-largest allocation, followed by equities, cash and fixed income.
Conversely, non-advised participants allocated nearly 35 percent of their portfolio to individual equities. This was followed by mutual funds, cash, ETFs and fixed income.
When comparing equity holdings, both advised and non-advised participants held Apple, Amazon and Berkshire Hathaway as their top three holdings. However, non-advised participants’ positions in Apple and Amazon were nearly double compared to participants who used an advisor. Additionally, advised participants invested in more blue chip, value companies, whereas self-directed investors allocated to more growth stocks.
“The report highlights the benefits of working with an advisor. In general, participants who had professional help were more diversified across all of their holdings. In addition, advisors typically rebalance a portfolio more often and keep their clients invested,” said Larry Bohrer, vice president, corporate brokerage retirement services at Charles Schwab.
The average self-directed account balance for all participants in the third quarter of 2018 was $265,902, up 3.5 percent from the second quarter of 2018 and up 24 percent from the third quarter of 2017, the report showed.
Advised accounts averaged 9.5 trades in the third quarter compared to 5.5 trades by non-advised participants. Baby Boomers, Gen X held the overwhelming majority of advised accounts with 84 percent of the total.