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.
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.
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."
Tisha Guerrero contributed to this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.