Comments on: ETFs in 401(k) Plans: The Technology Is Here

By: Paul Kampner

Paul Kampner — Thu, 01 Nov 2007 15:29:48 +0000

Let’s not lose track of the bottom line: how can we put more money in the pockets of participants. THis can be done two ways: (1) lower fees and (2) better returns on investments. ETFs offer two advantages in this regard: (1) lower fees and full transparancy and (2) the ability to create pure asset classes to provide for proper diversification in asset modeling. Adding RIAs, while adding cost, is not a negative. It improves the quality of the investments being offered (whether ETFs or otherwise), adds fiduciary protection and almost certainly reduces overall investment costs. As for recordkeeping and administration costs, what’s wrong with paying directly for the service instead of indirectly through 12b-1s or other other forms of hidden fees? Everyone should be looking at this objectively and asking: what is best for the participant?

By: Darwin Abrahamson

Darwin Abrahamson — Wed, 31 Oct 2007 20:33:00 +0000

Will’s comments are the same comments that Congress is hearing from the mutual fund companies in their hearings on fee disclosure. The usual suspects are claiming that revenue sharing and hidden fees are necessary in 401(k) plans. As SIFMA testified, “Revenue sharing covers an administrative expense the plan otherwise would have to bear. Moving away from nonproprietary options with revenue sharing can make it more difficult for plan providers to maintain profitability.” Jim Wiandt stated the truth in his article Happy Birthday 401(k)! 25 Years of Mediocrity, “The 401(k) business is a cash cow for the mutual fund companies.” The mutual fund companies and brokers are making money at the expense of participants they should be helping. I do not have a product I provide a service that reduces the total fees to both the participants and the plan sponsor. Our service is not to help the participants have an adequate retirement income and not to help brokers and providers get rich on participants contributions. Darwin

By: Will

Will — Mon, 15 Oct 2007 14:08:28 +0000

Lance is correct — Mr. Abrahamson is selling his product. Notice how he does not account for who will cover the costs of recordkeeping a sponsor’s plan when the revenue streams are so low? With ETF’s a financial advisor and/or third party adminstrator would be required…meaning separate fees to the Plan Sponsor that would likely incur a higher overall cost than using mutual funds from a bundled service provider. Who’s interests would this really serve?

By: Lance

Lance — Wed, 10 Oct 2007 19:59:39 +0000

Comments are not “right on”. The are a misrepresentation of the overall 401(k) industry and a plain and simple sales pitch. Shame on Mr. Darwin.

By: Stuart

Stuart — Sat, 06 Oct 2007 21:58:13 +0000

Darwin’s comments are right on. 100% index-based 401(k) plan supported with ETFs makes a lot of sense. ShareBuilder 401(k) is another 100% ETF solution targeted at business of less than a 100.