I noticed an interesting article recently on The Wall Street Journal website titled, “Why More 401(k) Plans Offer ‘Brokerage Windows.”
What’s a brokerage window? Well, it’s a little different from what you might be used to seeing on your 401(k) account.
A brokerage window is sometimes offered as an alternative option through 401(k) plans
This option entails additional fees but can offer nearly unlimited investment possibilities
Conducting targeted research will help determine if a brokerage window is right for you
Often when you go to the websites of Vanguard or Merrill Lynch or any other 401(k) platform, you’ll log in and see a list of fund options. These are typically mutual funds with many different tickers and names. But sometimes at the bottom of the page, there’s another option saying “brokerage link” or “brokerage window” that you may have never thought about opening…
This is actually a separate account where you can move your 401(k) funds to that offers almost unlimited investment options, from exchange-traded funds (ETFs) to mutual funds to even actual bonds sometimes. You might think that sounds great, but the Journal article emphasizes how you should be aware of a couple factors. First, there are often annual fees tied to that brokerage window, whereas most 401(k) accounts typically don’t have a line-item annual fee.
Second, we generally do not see commissions to buy or sell mutual funds within 401(k) accounts. But if you choose a brokerage window, you need to be on the lookout for commissions and front-end loads, which represent an extra percentage point paid to the mutual fund company to buy their product.
That said, I often encourage my clients to look at the brokerage link option because the pros often heavily overweight the cons- cheaper funds and more options!
So my advice would be to do your research rather than immediately discrediting the brokerage window option. First, check to see if a brokerage link or window is even available to you. Second, review your fees because even though you might have to pay commissions or an annual fee, the actual investments you can select may be cheaper than the typical 401(k) mutual fund options