TD Ameritrade Solves the ETFs in 401(k) Conundrum

December 2nd at 8:00am by Todd Shriber

In some circles, the 401(k) arena is viewed as a potentially massive growth frontier for providers of exchange-traded funds. The road to retirement planning paradise, however, has not been free of potholes for ETF distributors looking to cut in on the long-standing marriage between mutual funds and 401(k)s.

Which leads us to some good news for ETF providers and investors who want ETFs in their 401(k)s: TD Ameritrade (NasdaqGM: AMTD) is already offering ETFs to the 401(k) world. In fact, TD Ameritrade has been a force when it comes to offering ETFs in 401(k)s for more than two and a half years.

“A few years ago, clients asked for ETFs in 401(k)s and we rolled it out in March 2011,” said TD Ameritrade’s head of retirement planning services, Skip Schweiss, in an interview with ETF Trends. “A majority of 401(k) plans still feature mostly mutual funds. It was not a trivial exercise to build this 401(k) ETF capability, because most retirement platforms were designed and built to accommodate mutual funds.”

Indeed, there were barriers to entry for ETFs in the 401(k) market. As Schweiss noted, there were technological challenges, such as the fact that most 401(k) platforms were designed to trade only at the end of the day, a la mutual funds.

Other issues include the oft-discussed topic of fractional shares, a concern because ETFs – unlike mutual funds — generally can only be bought and sold  in whole shares.

These hurdles have not stymied TD Ameritrade’s growth in the 401(k) ETF space. Actually, the firm’s growth here has been accelerating.

Comparing September 2013 results to September 2012, assets in 401(k) plans that hold ETFs increased by 74%. As a percentage of TDA’s retirement plan holdings, ETFs have grown to 7.5% of all assets in the mix, compared to 5.9% of holdings in 2012. That’s a 27% increase, according to data that the firm provided ETF Trends.

Schweiss said a typical TD Ameritrade 401(k) menu of investments offered by advisors could include 15 funds with “five or so ETFs.” Underscoring the notion that investors want access to ETFs in their 401(k) is data from TD Ameritrade that show ETF positions in plans holding them make up about 50% of all asset positions in the those plans. That ratio has held steady while the number of plans and assets have grown substantially.

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