Mary Pilon of the Wall Street Journal explains:
ETFs, which typically carry low fees and trade like stocks on exchanges, have exploded in popularity, a rare source of growth in the otherwise stagnant mutual-fund industry. ETFs now hold a total of $997 billion in assets, up from $65.6 billion a decade ago. Still, ETFs have yet to make a dent in employer-sponsored 401(k) accounts, a $2.8 trillion market.
Schwab, just a bit player in 401(k)s now, sees ETFs as a way to edge closer to giants Fidelity, Aon Corp.'s Aon Hewitt and Vanguard Group. According to consulting firm Cerulli Associates, those three had a combined market share of about 43% in 2009, the latest year for which data are available.
Of course, this move is shaking up the retirement fund sector. Critics say ETFs are too volatile to be included in 401(k) funds, and warn investors might not understand the risks involved. Schwab counters by saying it will advise customers about the products and will stay away from the fancier, more complex ETFs that aren't suitable for unsophisticated investors.
Don't be surprised if there is some regulatory or lawmaker resistance to Schwab's plan. It is likely to be easy for Fidelity lobbyists to persuade regulators to slow down or halt this kind of innovation.
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