PANC 2013: The Low-Cost 401(k)?

Defined contribution plan participants are not saving enough, so there is a need to maximize their returns.

Advisers do not have control over much, but they do have some control over fees, so they should do all they can to lower fees and increase returns for participants, according to Robert A. Kieckhefer, managing partner at The Kieckhefer Group and moderator of a panel at the 2013 PLANADVISER National Conference.

Skip Schweiss, president at TD Ameritrade Trust Company, told conference attendees the Department of Labor (DOL) fee disclosure rules are having the desired effect. More plan sponsors are moving to exchange-traded fund (ETF) and indexed fund solutions. In addition, Thomas D. Ming, consultant and president at Tower Rock Advisors Inc., said he sees the small-plan market getting more options for lowering plan costs.

According to Sean Kelly, director of retirement services at WisdomTree Asset Management Inc., passive investing drives down costs. The benefits of ETFs include no trading restrictions, no redemption fees, no minimums, precise exposure to asset classes (no styles) and full transparency. “If the ETF is based on a benchmark, that’s what you’re going to get,” he said, adding that there is no revenue sharing with ETFs.

However, only 7% of plans are using an ETF platform, Schweiss pointed out. He said a small number of advisers are pushing ETFs, but the issue is that most major recordkeeping platforms are not using ETFs yet. He is noticing some custom target-date funds (TDFs) are utilizing ETFs as well as indexed funds.