Unlocking Retirement Savings Potential with Self-Directed Brokerage Accounts (SDBAs)

April 5th, 2024

Estimated Reading Time: 8 Minutes

In the evolving landscape of retirement planning, Self-Directed Brokerage Accounts (SDBAs) stand out as a unique tool for investors aiming to diversify their portfolios and adopt a more active role in managing their retirement savings. SDBAs are an innovative investment option that are altering the way individuals plan for their retirement. With a combination of flexibility and control, SDBAs can empower investors to tailor their retirement portfolio to better meet their financial goals and risk tolerance.

What is a Self-Directed Brokerage Account (SDBA)?

A SDBA is a specialized investment account within a retirement plan that allows participants to invest beyond the standard options provided. Unlike traditional retirement plans, which limit participants to pre-selected options of investments, SDBA investors can choose from individual stocks, bonds, ETFs, mutual funds outside the core plan offerings, and even sophisticated investments like real estate investment trusts (REITs). Traditional retirement plans contribute to investment options that are curated by the plan provider, simplifying the investment process for participants. In these plans, the investor plays a more inactive role in managing their account. A SDBA, however, gives the investor control to access to a wider array of investment vehicles, enabling them to design their own portfolios more precisely.


Key Features and Benefits of SDBAs

Expanded Investment Options

Traditional retirement plan offerings typically limit investment options to a curated selection of mutual funds, and sometimes company stock, chosen by the plan's fiduciaries. SDBAs unlock a wide variety of investment choices, extending beyond the conventional confines of employer-sponsored retirement plans. SDBA investors can explore this variety of choices to seek out low-cost index funds and ETFs. These expanded investment options allow an investor to better tailor their portfolio to their financial goals.

Greater Control and Customization

In this unique retirement plan, investors actively manage their own accounts and choose their investments accordingly. The ability to adjust the portfolio in response to changing market conditions or personal financial goals gives investors more control over their investment outcomes. SDBAs are designed for those who desire active management of their portfolios, offering the freedom to select investments.

Potential for Enhanced Diversification

Portfolio diversification is a strategic investment approach aimed at spreading investments across various asset classes, sectors, or geographies to manage risk. By investing in a mix of assets, investors can mitigate the impact of poor performance in any single investment on their overall portfolio. The broad spectrum of available investments through SDBAs can lead to a more diversified and potentially more resilient portfolio. In diversifying their portfolios, investors with SDBAs can find balance between risk and return that aligns with their goals.

Understanding the Risks

While the benefits of SDBAs are compelling, investors must also navigate certain risks involved in utilizing a SDBA:

Investment Knowledge

Effective management of a SDBA requires a deep understanding of financial markets and the willingness to conduct ongoing investment research. Within SDBAs, more of the responsibility to mitigate risks and adjust the portfolio lies in the investor’s hands. As a result, it is important that users who open SDBAs have reasonable financial and investment knowledge to understand the market fluctuations involved. With a lack of knowledge, an investor using a SDBA might be limiting their potential retirement savings by choosing unsuitable investments or adjusting them improperly.

Increased Risk Exposure

The expanded investment options also come with the potential for greater risk exposure, particularly if venturing into more volatile or unfamiliar markets. Without the guidance of a financial advisor, investors might allocate funds to high-risk options without fully understanding the implications, potentially leading to significant losses. The autonomy to trade freely within a SDBA can also tempt investors to make frequent, speculative trades, increasing exposure to risk. Therefore, while SDBAs offer the potential for higher returns, they require a sophisticated understanding of market dynamics and risk management to navigate effectively.

Potential for Higher Fees

Transaction costs and possibly higher expense ratios for selected investments can impact returns. More investment options could increase incurred transaction fees, commission costs, and management fees that can vary widely depending on the assets selected and the frequency of trades. Additionally, the flexibility that comes with actively managing investments might cause investors to trade more frequently which could lead to higher commission or transaction fees that accumulate overtime. SDBAs also allow for investment in specialized or alternative assets, such as private equity or commodities, which could have higher expense ratios or additional fees associated with them. These investments can be more expensive to manage and require more sophisticated oversight, contributing to the overall higher fee structure.

How to Find Out if You Can Open an SDBA

To explore the possibility of opening a SDBA, start by reviewing your current retirement plan's documentation or speaking with your plan administrator. Consulting with a financial advisor can help guide you in opening your SDBA. Additionally, it is important to research SDBA providers to discover if they offer independently owned or employee-sponsored retirement plans. Not all plans offer SDBAs, so it is essential to confirm their availability and consider how they align with your investment strategy.

Considerations Before Diving In

Before opening a SDBA, consider your investment experience, the time you can dedicate to managing your investments, and the costs associated. An informed approach and careful planning are key to leveraging the benefits of a SDBA effectively. Success with a SDBA involves strategic planning and continuous education. Start with a clear understanding of your financial goals and risk tolerance, diversify your investments to manage risk, and consider seeking professional advice to refine your strategy.


Self-Directed Brokerage Accounts offer a pathway to personalized and potentially rewarding retirement investment strategies. By providing a platform for expanded investment choices and greater control over your retirement savings, SDBAs can play a role in achieving diversified and optimized retirement portfolios. However, they demand a proactive approach, solid investment knowledge, and mindful risk management. If you are interested in speaking with an investment advisor about setting up or managing a SDBA, contact Chicago Partners. For those prepared to take an active role in their retirement planning, SDBAs represent a tool in the quest to maximize retirement savings potential.

Important Disclosure Information

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