ETF 401(k) Plans Eliminate Hidden Kickbacks

The Wall Street Journal‘s Eleanor Laise notes that exchange traded fund providers are making some headway into the 401(k) market.

In the article ETFs Make Inroads in 401(k) Plans, Ms. Laise highlights the success of WisdomTree and Invest n Retire LLC in getting employers to take a closer look at ETFs for their 401(k) plans. ETFs have lower fees and better disclosure of expenses and fund holdings than mutual funds.

One of the drivers of the interest level on the part of employers is coming from regulators who are demanding better disclosure of plan fees.

Mutual fund companies often provide “revenue sharing” (code for kickbacks) to company plan administrators. The “revenue sharing” costs are passed along to plan participants as part of the funds’ expenses and disclosure is hidden inside of complex agreements.

Since ETFs don’t have “revenue sharing” arrangements, the ultimate cost to plan participants is lower and better disclosed.

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