……Use ETFs as the investment choice! All of the nasty stuff mentioned above doesn’t exit in the ETF world. An ETF closely replicates an index. No fund manger personnel changes to worry about, no market timing issues, no short-term trading fees, and very few active managers consistently beat “the index.”
Plan participants can have a consistent style box investment choice. If they want a small cap fund, they get a true small cap choice with an index-period. Buy into an emerging market country, and then sell out after you’ve made a profit. If you sold an emerging market mutual fund, you probably would lose a good percentage of your profits due to a short-term trading fee. This doesn’t happen with an ETF.
What about that balanced fund that most of the participants in your plans have used? How much did it go down, 20 percent, 30 percent or 40 percent? I’m sure you were shocked when you found out the “fixed income” component wasn’t really investment grade bonds, but mortgage backed securities. Use ETFs to build your own models. iShares Aggregate Bond Index (AGG) or TIPs (TIP) product isn’t loaded down with mortgage backs.
It’s not the low operating expense ratio of ETFs; it is the consistency and, most importantly, the ability to make an advisor’s life a lot easier. The future is here; check out Barclays iShares 401(k) website, http://www.ishares401k.com/.