WisdomTree Sees 401(k) Plans, Fee-Based Advisors Driving ETFs
November 5th 2012 at 3:15pm by John Spence
Exchange traded fund manager and public company WisdomTree (NasdaqGM: WETF) says it expects 401(k) plans and fee-based financial advisors to continue to adopt ETFs and drive the next round of growth in the business.
WisdomTree recently announced a higher third-quarter profit as the asset manager sees money flow into its ETFs. [WisdomTree Quarterly Profit More than Triples]
During the firm’s earnings conference call, Chief Executive Jonathan Steinberg said 401(k) retirement plans are becoming transparent on the fees they charge participants. New federal disclosure rules went into effect this summer that help 401(k) investors figure out exactly how much they’re paying in costs.
“So, for the first time ever when you got your statement, you actually had some fee disclosure. That should prove to be a very constructive catalyst for future ETF adoption within 401(k) plans,” the WisdomTree CEO said.
There is over $3 trillion in U.S. 401(k) retirement plans, but only 0.2% of the assets are in ETF products, according to a recent report. However, with new fee disclosure rules, analysts think investors could start to look for low-cost, index-based ETF options to replace expensive mutual funds. [Five Key Trends in the ETF Landscape]
In the 401(k) industry, administration and back-office functions are geared to mutual funds. However, the ETF business has been developing platforms that would allow plans to use ETFs more. [New 401(k) Fee Disclosure Rules Would Give Low-Cost ETFs an Edge]
ETFs can be bought and sold during the day. The way they’re traded has been an obstacle for 401(k) plan inclusion. [ETFs Have Room for Growth in Retirement Plans]
Yet there are large custodians looking into making ETF options available, says Luciano Siracusano, WisdomTree’s chief investment strategist.
“And I think in the next year you’ll probably hear some news about that and hopefully that’s a driver for ETFs within 401(k)’s,” he said.
Additionally, the firm thinks the rise of fee-based advisors who charge clients a percentage of assets rather than commissions will fuel ETF growth. [Ongoing Shift to Fee-Based Advisor Model Supports ETFs]
“On the wirehouse side, you continue to see advisors moving from transactional or brokerage-related business to more fee-based business. ETFs work very well within the fee-based business,” Siracusano said during the recent WisdomTree conference call.
“A second driver is that there are money managers out there … who are now using ETFs in their models. Instead of buying individual stocks, they create their portfolio with ETFs. And so as they grow, it creates demand for exchange traded funds,” he noted.
“The third major trend is in a low-return environment, people are more conscious of fees and taxes. And that lends itself to people taking a look at exchange rated funds instead of traditional actively managed mutual funds,” the CIO added.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.