Currently, WisdomTree Investments is the only ETF provider that sells 401(k) plans with ETFs. WisdomTree began selling the plans in October and says it has solved the fractional share and commission problems, but it declined to elaborate on how. Focusing on small companies with small 401(k) plans, Al Shemtob, WisdomTree's director of retirement services, says the reception has been very positive, but he declined to say how many plans have been sold. He did not elaborate on number of assets currently invested in ETFs in the plans, either.

One big problem New York-based WisdomTree faces is that the company does not sell the plans directly. Most of these small plans are sold by financial advisors. So even if WisdomTree proves to financial advisors that these are great plans, the advisors need to convince the actual plan sponsors to buy them. Shemtob also says most 401(k) plans are bought in the third quarter, and WisdomTree didn't go live with its plan until the fourth quarter of 2007. In other words, the results could dramatically change by year end.

Among the other top ETF families, iShares and SSgA don't sell plans, but the few 401(k) plans offering ETFs often have funds from these two players. ProShares and Invesco PowerShares say currently no 401(k)s offer their funds.

Irony? 

One surprising fact is that for all the talk about putting ETFs into 401(k) plans, most ETF providers don't even offer ETFs in their own 401(k) plans. WisdomTree is the only firm offering its employees the ability to build a retirement portfolio out of ETFs. In January, BGI made two ETFs available to its employees for asset classes not previously offered. But in most cases, BGI offers institutional funds that are cheaper than ETFs. SSgA and ProShares don't offer any ETFs in their programs for employees.

The biggest provider of 401(k) plans with ETFs remains the creator of the concept, Invest n Retire. Darwin Abrahamson, the company's founder and chief executive, says the biggest change in his business has been moving away from small independent advisors who develop plans to work with independent fiduciaries who design their own ETF-only allocations.

Foxhall Capital Management, which has built allocation models for about $600 million on the taxable side, is now selling those same clients 401(k) plans worth up to $500 million with Invest n Retire's platform.

Abrahamson says he's also working on a $500 million plan that will be managed by Zacks IFE, and another for an association of eye, ear, nose and throat doctors that will be launched to the whole association at their convention later this year.

While the SSgA survey and WisdomTree's experience show financial advisors are ready to sell 401(k) plans with ETFs, in the end it comes down to convincing plan sponsors to buy them. Considering the increased fiduciary responsibilities imposed upon plan sponsors, it's unlikely that many will take the risk of offering ETFs in 401(k)s, when the ETF providers themselves won't offer the products in their own retirement plans. Until the major ETF providers step up to the plate, this could be a very slow game.

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