Exchange-traded funds are likely to grab a "significant" share of the 401(k) market in coming years, and TD Ameritrade Trust Co. plans to be part of the equation, according to Skip Schweiss, the company's president.
TD Ameritrade has rolled out an investment program that allows plan sponsors and independent registered investment advisers to offer ETFs to 401(k) participants alongside mutual funds, collective investment funds, employer stocks and other options.
"We're seeing a growing interest and demand in putting ETFs in retirement plans," Schweiss said in a press release Wednesday. "It fact, we're starting to see some breakthroughs in the ability to provide them."
Long-standing technical difficulties have kept ETFs out of the defined-contribution arena, Schweiss said. Legacy 401(k) recordkeeping and accounting systems are not designed to accommodate ETFs, which trade throughout the day and can only be traded in whole shares.
TD Ameritrade solved the problem for recordkeepers by developing a trading process that mirrors mutual fund trading and is consistent with their current procedures.
It includes the ability to trade fractional shares of ETFs.
In addition, per-share fees and transaction fees are eliminated for 401(k) plans on the company platform, which can potentially provide cost savings to plan participants and eliminate the reconciling component for recordkeepers.
TD Ameritrade isn't the only company eyeing the market for ETFs within 401(k)s. Charles Schwab reportedly plans to launch an all-ETF 401(k) plan in early 2012. BlackRock and ShareBuilder 401(k) already offer all-ETF 401(k) plans.
Meanwhile, TD Ameritrade is touting its open-architecture ETF capabilities as a low-cost way for plan sponsors and advisers to help differentiate themselves in the retirement-plan marketplace.
The company, a subsidiary of TD Ameritrade Holding Corp. in Omaha, Neb., has seen the popularity of ETFs grow steadily as advisers and TD Ameritrade clients seek low fees and diversification. ETF usage by TD Ameritrade clients has increased more than 30% annually for the past two years, the company said. But adoption of ETFs in 401(k) retirement plans has been low, mainly due to technical challenges.
"The technical challenges have prevented [ETF use in 401(k)s] from growing, but I think we are going to see significant inroads," Schweiss said.
Advisers are interested in ETFs as a way to access certain asset classes and market sectors within 401(k)s and to limit expenses for participants.
