IU: What's the cost on these?

Nestor: It depends on what investment you select. The average is 63 basis points, including all fees. On the low end, it's 50 basis points. At the high end, if you put all of your assets in the emerging markets portfolios, for example, you'd pay 1.1%.

IU: You could buy the Russell 1000 and the Russell 2000 ETF and control your costs that way, couldn't you?

Nestor: That's right. As far as we know, there's only one plan cheaper than us on the advisor side. When these plans were first marketed, most of the money flows went to the direct marketed plans. But now that has shifted and most of the activity is on the advisor side.

IU: Do you see any movement on the 401(k) side with ETFs?

Nestor: Most of the movement is behind the scenes. The primary challenge is the record-keeping platforms. Those just weren't built to account for traded securities. You can't trade securities in fractional shares, so when you have ETFs, there has to be some sort of system developed for accounting for those fractions. In order to avoid significant commissions and other trading costs, you've got to be able to roll up all of a plan's participants' executions of orders at certain times during the day. There are several platforms that have those capabilities today. But they're smaller players and it's very difficult for a 401(k) administrator to change record keepers.

IU: How close to you think we are to seeing more widespread use of ETFs in 401(k) plans?

Nestor: Some of the bigger record keepers are moving aggressively. Their timelines point towards the end of the year and the first quarter of 2009 for making the necessary changes. We've received a lot of inquiries from our clients interested in taking advantage of these capabilities. Roughly 40% of the advisors we've surveyed using iShares today are involved with 401(k)-related business and want to see ETFs made available in those plans.

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