Exchange traded fund providers have banded together to lobby and gain market share within the huge 401(k) plan industry. The retirement business is one of the areas that ETF firms have been trying to break into, touting lower fees as a selling point.
“Over the next 12-24 months, most of our industry sources highlighted distribution as a key theme,” said Nicolas Colas, chief market strategist at ConvergEx Group, in a recent report. “Retirement assets in self-directed programs are the last great bastions of the mutual fund world, since most firms that provide bookkeeping for these plans built their systems around these investment products.” [Why ETFs Appeal to Long Term Investors]
Major fund providers such as Schwab, Fidelity and Vanguard are slow to offer these tools on a retirement platform since many ETFs can be sophisticated or require some research before investing. Around 1% of assets in the 401(k) industry are in ETFs, reports John Melloy for CNBC. [How ETFs Could Break Into 401(k) Plans]
ETFs can satisfy the need for more investment choices, supplying targeted exposure as well as broad-based tools. Lower fees are another major highlight of the ETF debut into the 401(k) industry. Investors are just catching on to how much capital it can take to run the existing retirement accounts and how much this can eat into principle.
There is more work to be done by providers to decide which ETFs are safe to incorporate into these plans. There is likely to be some regulatory hurdles to pass also, as the industry is calling for tougher standards and more disclosure.
Nonetheless, the breakout of ETFs within the retirement industry must be done on a large scale movement, with some of the heavyweight providers involved in order to gain results. “Without Fidelity, Vanguard and T. Rowe using them they cannot make up a big part of the market,” Brooks Herman, head of research 401(k) plan research firm BrightScope Inc. said.[ETFs: Innovation, 401(k) Plans and The Dividend Trade]
Tisha Guerrero contributed to this article.
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.