Brokerage Window

What Is a Brokerage Window?

A brokerage window is an option offered in a 401k plan that gives the investor the capability to buy and sell investment securities on their own through a brokerage platform.

It may also be known as a "self-directed option" or a "self-directed brokerage option."

Understanding Brokerage Windows

The brokerage window is a relatively new convention for 401k plans, but it is quickly gaining popularity as more companies give the option to their employees. While the use of a brokerage window may not interest some investors, it can certainly be a viable option for those who wish to have more flexibility in their 401k investing.

Brokerage windows are an option associated with a firm’s 401k plan and must be integrated by the plan sponsor for use. Many investors may not be aware of brokerage windows or may have overlooked the offering in their 401k benefit plan.

Brokerage Window Considerations

Notably, 401k plans offering brokerage windows are likely to provide fewer options for their investors. While investors may have fewer standard offerings to choose from, a brokerage window opens the investable market to nearly all publicly traded investments. Brokerage windows are generally administered by leading discount trading platforms and offer investors the same options for trading a listed security that they would receive with a brokerage account.

Note that 401(k) plan participants are responsible for any trading costs, advisor fees, or commissions generated using a self-directed plan.

Brokerage Window Limitations

Since brokerage windows work within the portfolio of a 401k plan, each may have its own parameters defined by the plan sponsor. Some companies may limit the choices offered through the brokerage window to a select few. Brokerage windows can also incur high fees. Most brokerage window accounts will require an annual account maintenance fee of approximately $50.

Brokerage windows may also have higher than average trading costs, with some brokerage windows reporting transaction fees of $8 to $10 per trade. Thus, investors should do thorough due diligence on the fee structures of brokerage window accounts in comparison to standard options available in the market.

Many 401k plans focus on institutional shares of listed options that have much lower expenses than their retail counterpart. These can be good core investments for the holdings of a 401k portfolio, but venturing into other options such as a brokerage window may have fees that make standard brokerage accounts outside of the plan a better way to invest in a broadly diversified portfolio.