Within the Intel 401(k) account is an additional benefit that, in our experience, not many at Intel are using: the BrokerageLink® account. Just the other day we heard from an Intel employee who was disgruntled that Fidelity “continues to limit the investments options available in the 401(k).”
There are a handful of quality options in the Intel 401(k) fund lineup, but, if you want to build a more sophisticated portfolio or want additional choices with your investments, the BrokerageLink® account may be right for you.
So, what is a BrokerageLink® account and how does it work? What are the benefits and who should use it? Let’s take a look and find out.
What is a BrokerageLink® account?
A BrokerageLink® account is a sub-account within your standard 401(k) account. It essentially turns your 401(k) into a brokerage account by expanding the investment options beyond those preselected by Intel.
By opening this account, you have access to a wide variety of choices that would not be available in a traditional brokerage account. It gives you access to thousands of different mutual funds, ETFs and individual stocks beyond the 31 funds Intel preselects for the 401(k).
For example, using the BrokerageLink® account gives you the ability to own a managed futures fund or a real estate fund. You could make an allocation to a “smart beta” or fundamental index fund. Maybe you want to make a specific allocation to a particular region of the world: Europe or Japan, for example. Utilizing the BrokerageLink® account makes these customizations possible.
So, the main feature of the BrokerageLink® account is expanded investment options. When we use this account for our clients, we can execute the same investment strategy within the Intel 401(k) account as we would elsewhere.
Now let’s take a look at the benefits of expanding the funds available.
Because of the wider range of options available, there are certain advantages: improved allocation, lower expenses and lower taxes through asset location.
- Improved allocation: Certain asset classes and strategies are not available in the traditional Intel 401(k) lineup. In particular, specific allocation to the following areas is not available: European and Pacific market stocks, real estate, corporate bonds, inflation protected bonds, commodities, real estate, hedge funds and managed futures. These assets make up an important part of the portfolios we build for clients.
- Lower expenses: Intel has made many low-cost options available within the traditional 401(k) but there are times when lower costs and suitable alternatives can be purchased elsewhere. Good examples of this are target date funds. These broadly diversified funds make it easy to set your target allocation by simply buying one fund. But they tend to be higher cost—around 1.30% or more in the 401(k) account. Lower-cost alternatives are available in the BrokerageLink® for as little as 0.16% in annual expenses.
- Lower taxes through asset location: One way to reduce your taxes is to place the higher taxed investments in your tax-deferred accounts. This process is called “asset location.” For example, hedge funds, commodities and even bonds tend to be higher tax due to the higher tax rates on income and short-term capital gains. By having the flexibility to own these investments in your 401(k), you can place your allocation in this account and free up your taxable account for more tax efficient allocations, like stocks.
Is the BrokerageLink® account right for you?
Clearly, there are several benefits to BrokerageLink® accounts, but there is one drawback: an increase in the number of choices to make. Increasing the number of options available does, by definition, increase the number of choices we need to make.
And we’ve written before about the danger of having too many choices. Without a process or framework in place, too many choices can be paralyzing.
So who might the BrokerageLink® account be right for? In our experience it’s best used by two groups:
1) A do-it-yourself investor with a set plan and robust process in place for selecting and owning funds. Having a set strategy is especially important to avoid overtrading. This account, even though it’s more flexible, shouldn’t be an excuse to over-trade since the data reveals a detrimental impact on returns.
2) Someone working with an advisor. As mentioned previously, we use the Intel BrokerageLink® account to execute the same investment strategies with a client’s Intel assets as those held outside of Intel. We have developed a custom process allowing us to manage, directly trade and integrate all of a client’s investment accounts, no matter where they are held.
If you’ve decided the BrokerageLink® account is right for you, it’s pretty easy to open one up. Simply go online and open the account or fill out the paperwork to do so.
Next, you’ll need to move the funds from your 401(k) to the new BrokerageLink® account. This can be done by navigating to the investment section of the 401(k) account, then selecting transfer and exchanges (transfer to the BrokerageLink® account is one of the available options).
Notably, you can’t simply move the existing holdings in the 401(k) to the BrokerageLink® account. The current holdings are sold and the cash is moved to the BrokerageLink® account. This is all done with the transfer and exchange process, but it’s important to note what is happening and important to get the cash invested immediately in the BrokerageLink® account.
Your 401(k) contributions from your paycheck, are made as normal and they can be moved from the 401(k) to the BrokerageLink® account as you desire. For example, you can move them quarterly or twice annually. Or, you can set contributions to go directly into the BrokerageLink® account. Under this scenario the contributions are made in cash and you will need to login and trade the account to invest the funds.
If you are already working with an advisor, put them to work opening the account for you. Or, let us help. With more than a decade of experience working with the employees of Intel, Cordant has develop a customized process and system to manage and integrate your Intel accounts with any account you may have outside Intel. Opening a BrokerageLink® account is just one step in this system.
As always, we hope this was a useful overview and if you have any questions, please get in touch.
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Cordant, Inc. is not affiliated, associated or endorsed by Intel.