Should You Use Fidelity’s BrokerageLink® Option?

If you are one of the 22 million investors with a retirement plan at Fidelity, you may have access to an option within your plan that could dramatically improve the success of your 401k. Fidelity’s BrokerageLink® option is a self-directed brokerage account within the 401k or 403b plan. In this article, you’ll learn what the BrokerageLink® option is and when it may make sense to take advantage of it.

Most retirement plans provide a short list of investment choices across stock and bond categories along with “one stop shopping” in target date retirement funds. It is usually possible to craft a fairly well-diversified portfolio using the standard options offered by most plans. Interestingly, most investors don’t undertake the effort. As of Q1 2019, 52% of individuals with a Fidelity 401k had all of their retirement savings in a target date fund.¹

For investors who want more control over their asset allocation, BrokerageLink® may be the way to go. For purposes of our discussion today, we’ll focus on Fidelity’s offering, but many retirement plans administered by other institutions such as Charles Schwab, Alight, Ascensus, Vanguard, and Merrill Lynch offer similar “brokerage window” options.

What is BrokerageLink®?

BrokerageLink® gives you the ability to open a brokerage account within your 401k. This opens the universe of available investment choices to a much broader spectrum of securities. Some companies limit the types of investments you can own or the percentage of your 401k that can be moved into the BrokerageLink® account. Still, the wider selection of thousands of investment choices increases the level of diversification you can achieve and may give you access to investments that are superior to those offered in the standard 401k plan.

Benefits of BrokerageLink®

In addition to the ability to select from a much wider range of investment choices, BrokerageLink® accounts can be professionally managed. If you don’t have the time or temperament to manage the account, consider engaging a financial advisor to help.

Many of our clients rely on us to manage their 401k or 403b accounts, and access to a brokerage window such as BrokerageLink® greatly enhances our ability to add value to their plan. For those who work for Chevron, Cemex, Memorial Hermann, and Houston Methodist Hospital, we can link directly to their Fidelity BrokerageLink® account.

As noted above, the benefit of a brokerage window is not limited to Fidelity. Many of our clients have access to brokerage windows with their employers at LyondellBasell, BHP, Accenture, Caterpillar and United Airlines. A quick call to your plan administrator will reveal if you have access to a brokerage window in your plan.

Another benefit is that it may also be possible to reduce the internal costs of the funds in your 401k plan by using the exchange traded funds (ETFs), index funds, and in many cases, institutional share class mutual funds available through your brokerage window.

Additional Considerations

The following are some additional considerations to make before opening a BrokerageLink® account:

1. Account Size – The “hassle factor” may not be high enough if the size of your 401k is relatively small. Starting with the standard fund options in those cases may make more sense.
2. Fees – Transaction fees or account maintenance fees may be different for BrokerageLink® accounts than your primary 401k. Those fees can often be offset by careful selection of lower cost funds and ETFs within the brokerage window, but careful analysis may be required to achieve this.
3. Ease of Rebalancing – Within most standard 401k plans, there are usually options to automate the rebalancing of the account. With a BrokerageLink® account, the rebalancing will be completely up to you or your financial advisor. If you have the account professionally managed, this is actually a good thing because you have more control over what triggers a rebalance. However, if you plan to manage the BrokerageLink® account yourself, this may create an ongoing hassle that could have been avoided by sticking with the automatic rebalancing in the standard 401k.
4. Time – Do you have the time to open a BrokerageLink® account, create an asset allocation starting with a blank slate, and monitor the account for rebalancing opportunities or needed investment changes? If not, consider engaging a financial advisor to help.

If you have questions about BrokerageLink® availability in your company retirement plan or whether it is right for you, please give us a call.

1 Fidelity Q1 2019 Retirement Analysis