Cost would also become an issue since investors need to pay a brokerage commission to buy ETF shares and 401(k) accounts usually involve frequent purchases of a small number of shares. Furthermore, some ETFs subsidize management fees by including 12(b)-1 “marketing” fees so as to maintain a perceived ultra-low annual expense. [What are 12(b)-1 Fees?]
Individual investors have not been well-served by the 401(k) market as it stands today. Millions of investors were badly burned in the financial crisis and saw major losses in their portfolios. Until ETFs become a standard option in such plans, investors will need to be on their guard and be their own advocates for change. Ask your employer to push for ETFs to be incorporated into your company’s plan.
For more information on ETFs in 401(k)s, visit our 401(k) category.
Max Chen contributed to this article.