WisdomTree is launching a low-cost 401(k) platform aimed at small- and medium-sized companies.
It will feature WisdomTree's own family of fundamentally weighted exchange-traded funds as well as ETFs from other providers and some mutual funds.
ETFs are baskets of securities that trade throughout the day on an exchange, like stocks. They have had a hard time making inroads into the lucrative retirement market. Earlier this year, BenefitStreet, a firm that handles 401(k) record-keeping,
teamed up with Barclays Global Investors, a unit of
, the biggest ETF provider in the U.S., to launch a new platform.
By launching its own platform, WisdomTree is taking matters into its own hands, essentially eliminating the middle man
WisdomTree's 401(k) platform will be the first to offer ETFs based on fundamentally weighted indices, the firm's signature product. Unlike most indices, which weight component stocks according to their market capitalization, fundamental indices weight stocks according to other metrics such as earnings, revenue or
WisdomTree says market-cap weighting is riskier because these indices tend to overweight overvalued stocks and underweight undervalued stocks.
The New York company hopes the relatively low cost of its platform, which it puts at between 0.65% and 0.7% of a plan's assets, will also attract small- and medium-sized companies, which tend to pay higher fees.
"That's a very low fee for a 401(k) plan if that's the total cost involved," says Rick Meigs, president of 401khelpcenter.com, a research group that tracks the 401(k) market. "Anything under 1% is a highly competitive product."
The plan offers two options: One offers six portfolios of ETFs tailored to investors with a particular risk tolerance or target retirement date.
"We tell advisers, the fiduciaries, here are 15 ETFs and you can create your own portfolios out of these," says Al Shemtob, WisdomTree's director of retirement services. "But for guys who work for broker dealers that don't want them dispensing advice, we've a third-party to be the adviser and offer these portfolios."
The plan has 11 WisdomTree ETFs. However, WisdomTree doesn't currently offer any fixed-income ETFs, so in order to provide a full asset-allocation approach, the platform also offers two bond ETFs from
and two of
iShares. In addition, the plan has an open architecture that allows plan sponsors to add no-load mutual funds to the selection offered to employees.
The most popular WisdomTree ETFs available through the 401(k) platform include the
Total Dividend Fund
DEFA High-Yielding Equity
International LargeCap Dividend
International MidCap Dividend
International SmallCap Dividend
WisdomTree and iShares aren't the only companes to offer ETFs in a 401(k) platform. For the past three years, Invest n Retire of Portland, Ore., has been selling retirement plans focused on ETFs. And firms like RPG Consultants create platforms that companies put under their own name. Still, ETFs haven't gained much traction in the retirement market. The Investment Company Institute, a fund industry trade group, says the total number of ETF assets in 401(k) plans is so small that it doesn't even keep records.
Part of the reason is most 401(k) plans are run by mutual fund companies that have little incentive to offer a competing product that costs less. Also, because ETFs trade on an exchange, they must be bought through a stock broker, incurring the additional cost of a commission. Finally, despite the fact that ETFs have been available in the U.S. for some 14 years, many investors are still unaware of them, and even those with some knowledge of the product still don't understand how they work.
WisdomTree says it has tackled the trading issue, however; it's eliminated the commissions by trading through an omnibus account that allows for pricing at the close of the day, like a mutual fund.
Bruce Lavine, WisdomTree's president, says the new retirement plans could provide up to 20% of the company's revenues within two years.