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 Taxes aren't paid until the money is withdrawn from the account, typically after retirement.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 About Rollovers: It might make sense to help clients consolidate prior or orphaned 401(k) accounts into an account your advisor can manage directly.

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.