No doubt exchange traded funds are growing, yet ETFs face challenges, which they are overcoming, to enter the 401(k) marketplace.  Because contributions in 401(k) plans are frequent and small, the commission on the buys and sells of ETF shares can wipe out their advantages.  Through different strategies, firms are working to make ETFs available and attractive in their 401(k) plan.  Here are a few:

  1. Firms use their proprietary ETFs in the management of their mutual funds.
  2. Package ETFs in investment funds and daily-valued separate accounts.
  3. Give direct ownership through brokers.  For example broker-dealers can waive any ETF trading costs or compile all ETF buys and sells across participants.

With $3.5 trillion in defined contribution assets, expect to see more strategies emerge to penetrate the 401(k) market.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.

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