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Low Fees Support the Push for All-ETF 401(k) Plans


Fees have become a hot topic within the exchange traded fund industry. The recent focus on fees and the impact they can have upon investment returns has put exchange traded funds into the spotlight for use in 401(k) plans.

Recent regulation on fee disclosure imparted by the Labor Department has required providers to itemize fees and services for plans. The regulation recently spread into retirement plans, and a movement for fee reduction is gathering steam as investors and advisors try to keep fees to a minimum, reports Darla Mercado for Investment News.

“If small participant accounts are investing in ETFs every two weeks, they could have their investments eaten by commissions if you don’t build the system correctly,” Mr. Schweiss said, noting that TD charges a flat fee instead of a transaction cost. [Fidelity, BlackRock Deal May Speed ETFs in 401(k) Plans]

Fee reduction has been a hot topic in the investment community, as income is harder to come by and yields are still hovering around zero. Passively managed indices such as ETFs have been put into the spotlight as a means for capital preservation within a portfolio.

Advisrors  and ETF advocates have been pushing for ETFs within retirement plans. ETFs have yet to break into 401(k) plans because of structural differences. 401(k) plans have been modeled around mutual funds for years, however, the trading aspect and the transaction fees incurred are the biggest hitch.

Currently, some 401(k) plans use a few ETFs, such as TD Ameritrade. The firm began offering ETF-based 401(k)s in 2011. Other providers that are using ETFs in retirement plans include Invest n Retire LLC and ShareBuilder, Mercado reports.

Charles Schwab Corp. is readying the ETF version of its Schwab Index Advantage 401(k), set to market in the fourth quarter. [Charles Schwab Set to Launch ETF-Only 401(k) Plans]

The Center for Retirement Research at Boston College is supportive of fee reduction in retirement plans. The organization’s director, Alicia H. Munnell, proposed banning expensive actively managed mutual funds from 401(k)s and rollover IRAs. “Virtually all researchers agree that most actively managed equity funds can be expected to underperform index funds once fees are considered,” she wrote. “It makes no sense to expose the average participant to these options.” [ETFs and Retirement Accounts]

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.