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.
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.