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iShares Profile
iShares
<View
Profile>, a division of BlackRock, is the leading
provider of ETF’s in the world with an estimated 46%
market share.
Their 401(k) initiative
was launched in May, 2009, in response to the most
common request from retail advisors using ETF’s.
The iShares 401(k)
initiative has gathered nearly $500 million since its
launch.
Despite
some challenges that record keepers have to overcome to
use ETF’s, iShares early successes show that there is a
strong demand that only promises to increase.
Some of the
most sophisticated investors in the world use ETF’s as
part of their core investment strategy which has led to
an explosion in their popularity with almost $1 trillion
under management.
Known mostly for their
passive strategy, ETF’s are an efficient way for
investors to be in the market, but not bet that they can
beat the market.
Trading like an individual
stock, ETF’s are totally transparent and relatively low
cost.
Due to some operational
requirements, not all custodians can accommodate ETF’s
in 401(k) plans right now.
Because of
their transparency, there are no Sub TA, 12(b)(1), or
any type of revenue sharing fees for the record keeper.
As there is much greater
demand from sponsors and fee based advisors, more record
keepers will adopt ETF’s while evenly, and more fairly,
distributing costs among participants or by having the
sponsors pay the costs of servicing the plan.
iShares has created a
“Preferred Provider” group, which currently includes
Ascensus
<view profile> and PAi.
In addition they have
created a “Preferred Network” which includes custodians
like SunGard and MidAtlantic, who allow their record
keeping TPA’s to use iShares.
The custodians deduct
expenses at the participant level rather than relying on
revenue sharing from the funds.
iShares can reduce costs
for many plans.
For example, in the case
of a $26 million plan that was recently considering
ETF’s, they would have been able to lower overall
expenses from 125 BP’s to 70BP’s while paying the
advisor and record keeper from participant accounts
equally; iShares’ ETF’s average 25 BP’s.
Some will
question why not use mutual funds or even collective
trusts to which iShares would counter that ETF’s are
less expensive, especially when considering trading
costs not inherent in the expense ratio, the breath of
products, and the lack of redemption fees.
iShares is
uniquely positioned because of their leadership in the
ETF space with 190 ETF’s currently available, their
recently launched 401(k) initiative, strong brand, and
focus on working through fee based advisors.
Sponsors are looking for
something new and because not many advisors or record
keepers are offering ETF’s, those that do will have a
marketing edge while leveraging well respected brands
like iShares and BlackRock.
With concerns about costs
and fee transparency, some sponsors and advisors will
see ETF’s as a good and unique solution to help
participants better prepare for retirement.
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