ETFs and 401(k)s: The Romance Begins

ETFs have grown enormously over the past 20 years, and 401(k) plans have grown over an even longer period of time, and yet the twain have hardly met.

There are some small companies like Invest n Retire that specialize in providing ETF retirement platforms. Yet in a panel discussion of the 900-pound gorillas in the ETF space held at IndexUniverse’s InsideETFs Conference, State Street Global Advisors’ global head of ETFs, Jim Ross, identified the retirement space as a prime target of future growth.

AdvisorOne asked David Mazza, State Street’s head of ETF investment strategy for the Americas, why penetration of the retirement sector has been so low. Part of the reason, he said, was the shared history of 401(k) plans and mutual funds.

“As mutual funds were gaining in popularity, so were 401(k)s,” Mazza said in an interview on Tuesday at the conference in Hollywood, Fla.

Mazza also identified technological barriers, particularly those involving intraday trading, as only now being overcome.

“Here, 20 years into the ETF industry, the ability of 401(k) participants or providers to participate in ETFs is only coming on line now.

“Some smaller firms have built 401(k) ETF platforms. The larger firms are all looking at it, and they all have a timetable to do it.”

A traditional third barrier, aside from the comfort brokerages and plan sponsors have with mutual funds and technical issues concerning intraday trading, was the fact that ETF buying and selling involved a commission.