New BGI Program Highlights 401(k) ETF Providers

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May 4, 2009 9:33am ETF BASIC NEWS

401kFinancial advisers looking to access exchange-traded funds for their 401(k) accounts may find the search is easier with the launch of a new Barclays Global Investors program that is designed to highlight administrative providers and networks that enable the use of ETFs in 401(k)s.   See Story: Why the Case For ETFs In 401(k) Plans Just Got Stronger

Essentially, the “iShares in 401(k) Program” gives certain service providers BGI’s stamp of approval. It officially went live on May 1.

ETFs are very appealing to 401(k) investors in small- and mid-sized plans, which may not qualify for some of the lower fund fees available to larger plans. ETFs are cheaper than most traditional mutual funds, including many index funds. But the record-keeping and transactional accounting systems for 401(k) funds were originally designed for mutual funds, which trade once a day at the end of the day and can only be bought and sold in full shares – unlike ETFs, which trade throughout the day and can be traded in fractional shares.

Although there are ways to access ETFs indirectly, and some self-directed plans from large brokerage houses actually do allow for direct ETF ownership, it’s only recently that solutions have been developed to bypass these obstacles for the average 401(k) plan. However, such plans are few and far between, and they’ve been a bit slow getting off the ground.

The program is targeted at financial advisors and screens the firms considered for inclusion for low pricing and directness of access. Fee transparency and quality of service are also major considerations in the evaluation.

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