The exchange traded fund (ETF) industry has long lusted after the prospect of being a standard component of 401(k) plans. While it’s making some serious headway, one provider in particular is leading the charge and having an impact.
BlackRock has been pushing hard to get Americans to ditch mutual funds in 401(k) plans in favor of ETFs, and it looks like it’s having some effect.
BlackRock estimates that as much as $2 billion of its iShares funds are now held in 401(k) plans. Mutual funds make up $2 trillion of the $2.7 trillion 401(k) market, and naturally, the ETF industry is salivating at the prospect of chipping away at that market share. [A Sea Change for the Mutual Fund Industry in 2009.]
ETFs have a lot of selling points, but the one that would be most appealing to 401(k) plan participants is is that of low fees. The average expense ratio for an iShares ETF is 0.41%, vs. the 1.50% average of a mutual fund. That difference can translate into savings in the tens of thousands over decades, says Joe Mont for TheStreet.
BlackRock isn’t the only firm getting ETFs into plans, though; ShareBuilder 401(k) provides plans to small businesses and Vanguard uses index mutual funds in its own 401(k)s. WisdomTree created a business unit in 2007 that delivers 52 ETFs to the 401(k) marketplace. Small businesses like Invest n’ Retire have been the early adopters of ETFs in retirement plans, but once larger companies and corporations join in, the growth may really take off. [Making the Switch to Mutual Funds.]