The WSJ (subscription required) reports in “Schwab’s Bold Bet on ETFs” that the brokerage firm soon would offer 401(k) retirement plans solely stuffed with ETFs—and let investors trade them without charge:
ETFs, which typically carry low fees and trade like stocks on exchanges, have exploded in popularity, a rare source of growth in the otherwise stagnant mutual-fund industry. ETFs now hold a total of $997 billion in assets, up from $65.6 billion a decade ago. Still, ETFs have yet to make a dent in employer-sponsored 401(k) accounts, a $2.8 trillion market.
Schwab, just a bit player in 401(k)s now, sees ETFs as a way to edge closer to giants such as Fidelity Investments, Aon Corp.’s Aon Hewitt and Vanguard Group. According to consulting firm Cerulli Associates, those three had a combined market share of about 43% in 2009, the latest year for which data are available.
Schwab doesn’t disclose publicly how much of its $4.2 billion in annual revenue comes from the 401(k) business. Cerulli ranks the San Francisco company 10th by assets, at $72.5 billion.
Many 401(k)s, particularly those offered by Vanguard, already offer a thick menu of low-cost index mutual funds. So Schwab’s main targets are companies where 401(k) plans consist largely of actively managed mutual funds. Such funds charge higher fees than index funds or ETFs.
Adding ETFs to 401(k) plans could put more pressure on actively managed fees, a trend that began with the introduction of index funds in the 1970s.
