PHILADELPHIA — WisdomTree Investments Inc. is planning to roll out a platform designed to get exchange traded funds into 401(k) plans.
The exact details of the platform, which is expected to be launched in September or October, are still being worked out, said Al Shemtob, who this month was hired as director of retirement services, a new unit at New York-based WisdomTree.
But “the very first thing we’re going to do is work on a way to aggregate trading activity, and work with a trading partner to keep the cost of trading [ETFs] to the point where it’s very manageable,” he said.
Trading costs are a major obstacle to ETFs in retirement plans, because most retirement plan participants dollar cost average. That gives mutual funds an edge, because they can easily accommodate such investors.
But others have developed solutions to address that issue.
XTF Advisors LLC, a New York subsidiary of XTF LP, has developed mutual funds that invest in ETFs, as well as
separately managed accounts, both of which can be included in retirement plans.
AST Trust Co. of Portland, Ore., a division of American Stock Transfer and Trust Co., offers retirement plan collective trusts that invest in ETFs.
But the model that appears closest to the one WisdomTree is contemplating comes from Invest n Retire LLC, also of Portland. The company has developed a system that allows retirement plan participants to own whole and fractional shares of ETFs in their portfolio without forcing them to shoulder the expense of setting up self-directed brokerage accounts.
If WisdomTree is successful in launching its platform, it would be the first such platform actually to come from an ETF provider.
WisdomTree still plans to work with such companies, Mr. Shemtob said. But he said that it is important for the company to develop its own platform to make headway in the retirement arena.
Many industry watchers have said that ETF providers have been slow to come up with innovative solutions when it comes to getting their products into retirement plans.
“I don’t know [whether] they are pushing ETFs [in retirement accounts] or moving it along,” said David Nolte, founder of Fulcrum Financial Inquiry LLP, a Los Angeles-based consulting firm.
WisdomTree, however, might find that being a pioneer has few rewards.
“I don’t have any clients which have asked for ETFs,” Christopher Carosa, president of Carosa Stanton & DePaolo Asset Management LLC of Mendon, N.Y., said last month in New York at the ETF Evolutions conference, held by the International Quality and Productivity Center, which is based in that city. Mr. Carosa’s firm is a consultant to plan trustees and institutional fiduciaries.
And even if they were asking for ETFs, it is highly unlikely that they would be asking for ETFs from WisdomTree, industry experts said.
Plan sponsors generally like to see more than a couple of years’ worth of returns before they decide on investment offerings, said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.
If
Barclays Global Investors of San Francisco were rolling out a retirement platform for ETFs, “it would have a better shot” at success, he said.
That may be true, but Mr. Shemtob thinks that WisdomTree has the right mix of products to be attractive to investors in retirement accounts.
For example, the company offers a group of ETFs that follow
dividend-weighted indexes, he said. In other words, the indexes that underlie the ETFs are weighted based on cash dividends or
dividend yields. That can be particularly attractive to those saving for retirement, Mr. Shemtob added, because such ETFs offer the potential for income-generating yields.
WisdomTree launched its first ETFs last June.
