TD Ameritrade is offering a new investment program that will allow plan sponsors and registered investment advisors to offer exchange traded funds (ETFs) to 401(k) plan participants alongside other plan investment options such as mutual funds, collective investment funds, and employer stocks.
“With this 401(k) solution, we’ve made adding ETFs as an investment option to a retirement plan easy and affordable,” said Skip Schweiss, president, TD Ameritrade Trust Company. “We offer a wide selection of non-proprietary investment choices at a low cost so advisors and their plan sponsor clients have the tools they need to help workers pursue their retirement goals. By including ETFs in retirement plans, plan sponsors and advisors can deliver valuable choices to their clients and differentiate themselves in the marketplace.”
The company says the popularity of ETFs as an investment option has been growing steadily with independent RIAs and TD Ameritrade clients looking for low and transparent fees and diversification. TD Ameritrade client usage of ETFs has increased more than 30 percent annually for the past two years.
ETFs have been a popular investment choice particularly for younger people, making up up roughly 10 percent of the average Generation X or Y investment portfolio.
Even with the increasing popularity of ETFs, adoption of ETFs in 401(k) retirement plans has been low, mainly due to technical challenges.
Legacy 401(k) recordkeeping and accounting systems are not designed to accommodate ETFs which trade throughout the day and can only be traded in whole shares. To overcome these hurdles, TD Ameritrade Trust Company has simplified operations for recordkeepers by developing a trading process that mirrors mutual fund trading and is consistent with their current procedures. This process also includes the ability to trade fractional shares of ETFs. In addition, per-share fees and transaction fees are eliminated for 401(k) plans on the TD Ameritrade Trust Company platform, which can provide potential cost savings to plan participants and eliminate the reconciling component for recordkeepers. Another key feature of the TD Ameritrade Trust Company platform is its open architecture, which allows advisors and plans sponsors to select ETFs from multiple providers.
“We expect the ETF market will continue to grow and by facilitating their use in retirement plans, TD Ameritrade Trust Company aims to drive down costs in the industry and further our commitment to providing advisors, plan sponsors and participants the choice and flexibility they need to help their clients achieve their retirement investing goals,” noted Schweiss.