For all of the talk about 401(k) plans rushing to include exchange-traded funds in their lineup, few sponsors are making the move, The Wall Street Journal reports.
Most believe they already offer funds with the attractive features of an ETF, namely low-cost equity and fixed income index funds. In addition, they don’t see the benefit of offering funds known for their tax efficiencies in qualified plans and, certainly, don’t want to encourage investors to actively trade their funds or incur the brokerage commissions.
On top of this, because ETFs can be traded like stocks, it would require plan sponsors and their administrators to go to the time, trouble and expense of building trading platforms.
“We’ve had virtually no demand from our plan sponsors for ETFs,” said Fidelity spokeswoman Jennifer Engle.
“It’s an extremely large and embedded process that they’re trying to crack through, [and] getting into those plans is very cumbersome,” said Scott Ebner, SVP of the ETF Marketplace at the American Stock Exchange.
But that isn’t stopping ETF providers from trying to land this business, which they view as offering the potential for millions, if not billions, of windfall. Thus, many are building trading platforms tailored for 401(k)s, and some are even cutting their trading commissions.