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December 15, 2011 at 12:38 PM
Invest n Retire, a recordkeeper based in Portland, Ore., that specializes in offering ETFs to defined-contribution plans, recently released a white paper calling for a “revolution in the retirement industry, the core of which is an entirely new structure designed around exclusively offering exchange-traded funds as investment options.”
Neil Plein, vice president of sales and marketing for Invest n Retire and author of the paper, calls this strategy the “only truly viable way to enact the type of technological change participants urgently need to build higher average retirement balances on a macro scale.”
Mutual fund proponents may claim that low-cost index mutual funds can do the job of ETFs in a retirement plan, Plein writes. He argues, however, that since an ETF and an index mutual fund can track the same index, a lower cost ETF is the better investment. Mutual funds, he writes, have inherent costs like “brokerage commissions, ‘market impact costs’ and spreads” that ETFs don’t have.
Plein points to a 2007 John Hancock study that found a majority of surveyed retirement plan participants would have fared better in a lifestyle portfolio than they did picking their own investments. A June 2011 study from Vanguard found that more retirement plan participants were using professionally managed automatic investment programs. A September 2011 report form Aon Hewitt and Financial Engines found that investors who use professional management tend to have higher average portfolio balances, according to Plein.
