The $2.5 trillion 401(k) business is up for grabs, and high-level scrutiny has presented ETF providers an opportunity to capitalize on this traditionally mutual fund-dominated market.
For example, Barclays Global Investors is the world's largest ETF manager, but less than 1 percent of its ETF assets reside inside 401(k) plans. In an attempt to change that, BGI has made its ETFs available to 401(k) plan sponsors and financial advisers through BenefitStreet, a company that administers $8 billion of retirement plans.
Through its platform, BenefitStreet places trades at the fund level, to minimize commission costs while maintaining full pricing transparency down to the participant level. This unique approach allows plan sponsors and their employees to benefit from low institutional pricing. "We developed this new platform in response to the regulatory changes taking place in the 401(k) industry calling for lower fees and more fee transparency in defined contribution plans," says Ken Weida, BenefitStreet's co-founder. "Our mission is to empower our clients and their families through innovation and unique access to the best benefit solutions. This is the latest example, by providing a high-quality ETF 401(k) solution at a very low delivery cost in a way that is fully transparent."
BGI is also happy with the deal. "This is a breakthrough in the delivery of iShares Funds to the sizable 401(k) U.S. market at a time when transparency and low total cost are critically important to plan sponsors and advisors," says Michael Latham, the head of the company's North American iShares operation. "BenefitStreet in partnership with iShares Funds brings a new option for plan flexibility, cost efficiency and technical expertise that make managing non-taxable accounts even more attractive for advisors."
Putting iShares funds on this platform allows advisors who have been offering ETFs to their clients with taxable accounts to offer these investment options to their 401(k) clients. ETFs in 401(k) plans can provide precise asset allocation and lower management fees than other investment alternatives in these plans.
However, Fidelity and Vanguard, which combined manage more than $1 trillion in 401(k) assets, have not moved to offer ETFs as an investment option. The perception there is that ETFs are a trading vehicle and not necessarily a long-term investment choice.
Ron DeLegge is the San Diego-based editor of www.etfguide.com.