Along with ESG and cryptocurrency, Shariah-compliant investments are also being accessed through brokerage windows. “We certainly have been receiving additional questions around whether a brokerage offering would be something that plans might want to consider offering for Shariah compliance,” said Angela Capek, record-keeping and operations platforms product area leader at Fidelity Investments in Raleigh, N.C.
Ms. Capek said that brokerage windows are becoming especially popular among millennials, who account for 48% of new account openings with Fidelity’s self-directed brokerage offering, Fidelity BrokerageLink. In 2015, they accounted for 18%.
“Trending indicates millennials will surpass all other generations in new account openings very quickly,” she said, adding that many millennials are also seeking to be more socially responsible with their investment choices.
Ms. Capek attributes the increased interest among millennials to social media forums and trading platforms, such as Robinhood Markets Inc., that have increased awareness of investing. “Market volatility around meme stocks in early 2021 awakened many young Americans to the possibility of investing and helped motivate them to start educating themselves,” she said.
Some plan sponsors hesitate to offer brokerage windows because they fear participants might make unwise or overly risky investment choices, concerns that sponsors typically mitigate by limiting the investments available through the brokerage accounts they offer.
Sony, for example, includes only mutual funds and certificate of deposit options. “We purposely excluded any investment other than mutual funds or CDs to promote diversification and reduce potential exposure to significant losses from individual securities or non-traditional investments,” Sony’s Mr. Backman said in his testimony. The company also limits participant investment in the brokerage window to no more than 50% of a participant’s plan account balance.
Plan sponsor concerns about brokerage windows are also mitigated by the fact that a small percentage of participants use the windows and those that do tend to be highly compensated with higher-than-average account balances, according to research by Alight, Fidelity and other industry experts.
Alight’s Mr. Austin found that about 2.5% of participants use a brokerage account, a percentage that “never has budged all that much,” he said. In keeping with the research, participant use of the brokerage accounts offered through AVANGRID’s and Sony’s 401(k) plans has been modest. Roughly 2.4% of AVANGRID’s 401(k) participants use the brokerage window, which holds 2.1% of total retirement plan assets, Mr. Visconti said. Meanwhile, at Sony, 1.3% of participants use the window, which represents 0.9% of all plan assets, according to Mr. Backman’s testimony.
Mr. Austin encourages plan sponsors to use brokerage accounts if “they feel like they have people in their organization who want to invest differently,” adding that sponsors shouldn’t “worry too much about abuse in the self-directed brokerage accounts by individuals.”
People aren’t “going to take all of their retirement savings …….