Chances are your 401(k) plan has a no-trade clause.
The typical worker’s 401(k) retirement portfolio contains one or more mutual funds that focus on stocks and bonds, but not funds that themselves trade on an exchange.
But the broker Charles H. Schwab says it is “close” to winning final regulatory approvals for a 401(k) exchange-traded funds (ETFs) product that would include professional advice.
The Investopedia website defines an ETF as “a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.” So ETFs experience price changes throughout the day as they are bought and sold.
The 401(k) benefit of ETFs, Schwab officials say, is simple: They’ll get you to your goals more cheaply, and the savings can be put to work in getting professional advice on your investments.
“In order for the participant to pay for advice, you really need to go with the lowest-cost investment approach.
“And the index fund and the ETF are just two different ways of getting there,” said Steven Anderson, executive vice president of Schwab Retirement Plan Services.
Retirement-planning advice, or the lack of it, is one of the controversial parts of 401(k)s, which have become the most widespread retirement-saving vehicle.
Nevertheless, some of Schwab’s biggest competitors have less enthusiasm for the 401(k) ETF.
Linda Wolohan, a spokeswoman for Vanguard Funds, said more index options in retirement plans, whether through traditional funds or ETFs, is a good idea. (Vanguard, of course, is famous for its index funds.)
“ETFs lower the cost of retirement [savings] in the same way that traditional index funds do — by lowering the cost of investment management,” Wolohan said.
“Importantly, both traditional index funds and ETFs cost substantially less than most actively managed funds,” Wolohan said.
But she adds that Vanguard has been offering ETFs in retirement plans since 2011 and has experienced little demand for them for its clients.
Fidelity Investments and T.Rowe Price spokesmen said their companies had no plans to offer ETF 401(k) products.