ETFs For Your 401k Plan: Fact Or Fiction?

Many readers have expressed regret about not having ETF choices available in their 401k plans. A lot is being done to change that in the future although the mutual fund companies handling most of the custodial functions like the status quo.

SmartMoney’s article “Coming Soon: ETFs in your 401k” sheds some light on the dominant positions that the major players like Fidelity, Vanguard, T.Rowe Price and Principal have. It’s nothing but a cash cow for them with more than 2 trillion sitting in 401k type of accounts. This privilege allows them to keep collecting fees year after year without performance considerations.

In my advisor practice, I have seen my share of 401k plans from clients who left their jobs and were looking to roll over their assets into an IRA. Most of the 401k choices weren’t worth the paper they were written on or seemed to have been picked out by a low level clerk who played darts.

From my experience, about 2% of the 401k plans I have seen offered a reasonable amount of fund choices that were worthwhile and occasionally the custodian actually made an effort to offer new fund selections every few years.

Most of them, however, are the bottom of the barrel. I have a client who works for a Fortune 500 company, which shall remain nameless, and whose 401k I manage.

It’s the saddest and most incompetent of all plans I have ever seen. So, yes, new companies like BenefitStreet, Invest N Retire, Wisdom Tree and others trying to break the old established rules and offer a fresh approach along with new choices will only benefit the 401k participant who, in my view, is being taken advantage of by the old system.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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