Americans held almost $9 trillion in defined contribution plans at the end of September 30, 2022, according to the Investment Company Institute. And the money invested in 401(k) plans accounted for $6.3 trillion of that amount. Where is the bulk of that money invested? In mutual funds.
Up until now, the ETF industry has made no serious attempt at penetrating the 401(k) retirement arena. Instead, ETF issuers seem satisfied with standard excuses like "there's no advantage of ETFs inside 401(k) plans" or "mutual funds already own the 401(k) market."
The $15 trillion mutual fund industry is arguably less innovative than the $6 trillion ETF market. But mutual funds are rock stars when it comes to distributing their products inside the retirement plans where trillions of dollars sit.
If the ETF industry were ever smart enough to combine its innovative streak with aggressive distribution inside 401(k)s, the one-two combo punch would be formidable.
How can the ETF industry continue its impressive asset growth into the future? More emphasis on product distribution and less focus on innovation alone would be a good place to start. This type of move would give investors better investment choices and provide financial advisors with greater flexibility in the way they implement their strategies.
In the end, ETFs need to be available where the money is. Let’s hope the industry answers the call.