July 17, 2008 at 2:00 pm by Tom Lydon
State Street Global Advisors conducted a survey in June which determined that financial advisors think the biggest growth area for the exchange traded fund (ETF) industry is within 401(k) plans.
Of the 840 respondents, 43% felt this was the case, reports Lawrence Carrel for Index Universe. However, 27% predicted actively managed ETFs were up next and 20% said the biggest growth area would be for unified managed accounts.
The stage of development for ETFs within retirement plans is still in its infancy. So far, Vanguard and WisdomTree are the only two providers selling 401(k) plans. Major reasons why these funds aren’t a staple in the plans are:
- ETFs are attractive for traders and intraday trading is not beneficial to a 401(k) plan
- Retirement plans have tax advantages that will cancel out the tax efficiency of ETFs
- Smaller contributions would be eaten up by brokerage commissions
- Pooled indexed funds for institutional purposes are still less expensive
The demand for ETFs in retirement plans is still evident, because ETFs give exposure to world markets and special asset classes at a lower cost than mutual funds. Carrel points out that while there is much talk about putting ETFs into 401(k) plans, most ETF providers do not offer ETFs in their own retirement plans.
Tags | 401(k)
July 17th, 2008 at 8:20 pm
Great post, Tom, and I totally agree that there is going to be an ETF explosion in 401k’s over the next decade. We’ll probably also see the Roth 401k become a lot more popular. I think all of these changes are coming a little late for Baby Boomers, too many were speculating in their 401k, have little time to recover and will probably have to work longer. Generation X on the other hand should make out like a bunch of bandits.
Great read, thanks for the post,
Cheers,
Odd Lot
http://Money-and-Investing.com