Understanding Held-Away Assets:
The 401(k) Connection

What is a Held-Away Asset?

A held-away asset is any financial asset that a client owns but isn't directly managed by their primary financial advisor or wealth management firm. In many cases, a client's 401(k) falls into this category. Here's why:

1. A client's 401(k) is typically managed by their employer and a designated plan provider, not their personal financial advisor.
2. Financial advisors usually can't directly manage or easily make changes to a client's held-away 401(k).
3. Advisors may have limited visibility into the details of a client's 401(k), including its balance, investment options, and performance.

What is a 401(k)?

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account, typically after retirement. Many employers also match a portion of employee contributions, providing additional retirement savings.

Why does it matter?

Understanding the concept of held-away assets, particularly in relation to 401(k)s, is important for several reasons:

1. Comprehensive Planning: Even though advisors don't manage a client's 401(k) directly, it remains a crucial part of the overall financial picture. It should be considered an essential part of a comprehensive financial plan.
2. Asset Allocation: Client 401(k) accounts can represent a significant portion of their overall wealth. According to the Federal Reserve, the median American holds more than half of their net worth in accounts like 401(k)s.^†
3. Holistic Advice: Recognizing held-away assets allows financial advisors to provide more comprehensive advice, providing value to and strengthening relationships with clients.
4. Potential for Better Management: Some advisors are now offering services to help manage or provide advice on held-away assets like 401(k) accounts, often through specialized tools or partner agreements.

What should financial advisors do?

1. Keep Clients Informed: Provide clients with regular updates about market conditions and financial decisions that can affect their 401(k) and other held-away assets. Encourage them to ask questions and engage.
2. Offer Comprehensive Advice: According to a 2021 study^††, 62% of 401(k) participants wish they could completely hand over retirement planning. It's highly likely that clients will increasingly look for advisors who can provide guidance on all assets, including held-away assets like their 401(k) accounts.
3. Proactively Engage Clients: It might make sense to help clients consolidate prior or orphaned 401(k) accounts into an account the advisor can manage directly, especially when considering how or if to rollover assets.

By understanding the concept of held-away assets and how they relate to client 401(k) accounts, advisors can help ensure that all client assets are working together effectively towards their financial goals. Remember, a truly comprehensive financial strategy considers every piece of the client's financial puzzle – even the pieces held elsewhere.