BenefitStreet, a pioneer in creating solutions for corporate benefits, has announced a new 401(k) platform that will enable US investors to choose both exchange-traded funds and mutual fun
BenefitStreet, a pioneer in creating solutions for corporate benefits, has announced a new 401(k) platform that will enable US investors to choose both exchange-traded funds and mutual funds in the same retirement savings plan.
ETFs typically carry much lower expenses than mutual funds, including passive index trackers. According to the Investment Company Institute, at the end of July US WTF assts totalled USD488.83bn, up 40.3 per cent over the past 12 months. Currently a small fraction of the total, ETFs in the 401(k) market are projected to grow alongside the micro, small and mid-size plan markets between 7 per cent and 10 per cent annually through 2011.
‘Participants in 401(k) plans can now seek a low-fee market rate of return using ETFs while still having the choice to invest in the traditional mutual funds they believe will help add value to their accounts,’ says BenefitStreet chief executive Jim Drury. ‘We believe this element of choice will empower individual investors to choose the investment approach that makes the most sense for their retirement goals.’
Traditional 401(k) record-keeping systems were designed to allow small, incremental investments in mutual funds and other products that do not trade in whole shares on an exchange. BenefitStreet’s recent introduction of its ETF-only 401(k) platform addressed this technology issue to enable direct, incremental investments in ETFs.
The platform aggregates ETF orders across all plan sponsors and places trades at the fund level to reduce trading costs for participants to a fraction of a cent. Even with the recent growth in the ETF market, some plan sponsors have been reluctant to take away the mutual fund choices popular with participants for their retirement plans.
By incorporating mutual funds into the ETF 401(k) offering, BenefitStreet has addressed this concern. ‘Rather that having to choose one or the other, we’re excited to see BenefitStreet’s ability to combine ETFs and mutual funds in the same plan offering,’ says Tim Nihill, manager of retirement products and services at Boston-based Commonwealth Financial Network.
‘The original ETF 401(k) plan’s only barrier to entry for a number of our corporate clients was that it took away the ability to also invest in mutual funds. We believe, however, that most participants will find the ETF portfolios very appealing once they see how lower fees can positively impact long-term performance.’
Michael Latham, head of Americas at iShares, the world’s largest ETF provider and part of Barclays Capital, says: ‘The availability of iShares in BenefitStreet’s ETF platform comes at a time of increased scrutiny over the transparency of fees associated with 401(k) plans. ETFs, with their lower average cost and greater transparency, should become a core part of the 401(k) market just as mutual funds did over the past 15 years.’
The new platform is now available to plan sponsors and independent advisors to incorporate a full range of 401(k) investment vehicles, including index-tracking ETFs, passive and actively managed mutual funds.
‘The new platform removes the road blocks that kept 401(k) participants from having access to ETFs,’ Drury says. ‘Participants in 401(k) plans should have every investment opportunity open to them, and we believe it is the fiduciary responsibility of plan sponsors to ensure that choice.’
Founded in 1993, BenefitStreet serves more than 7,100 corporate clients from its headquarters in San Ramon, California, and 12 locations throughout the US.