Financial advisers looking to access exchange-traded funds for their 401(k) accounts may find the search is easier with the launch of a new Barclays Global Investors program that is designed to highlight administrative providers and networks that enable the use of ETFs in 401(k)s.

Essentially, the "iShares in 401(k) Program" gives certain service providers BGI's stamp of approval. It officially went live on May 1.

ETFs are very appealing to 401(k) investors in small- and midsize plans, which may not qualify for some of the lower fund fees available to larger plans. ETFs are cheaper than most traditional mutual funds, including many index funds. But the record-keeping and transactional accounting systems for 401(k) funds were originally designed for mutual funds, which trade once a day at the end of the day and can only be bought and sold in full shares—unlike ETFs, which trade throughout the day and can be traded in fractional shares.

Although there are ways to access ETFs indirectly, and some self-directed plans from large brokerage houses actually do allow for direct ETF ownership, it's only recently that solutions have been developed to bypass these obstacles for the average 401(k) plan. However, such plans are few and far between, and they've been a bit slow getting off the ground.

The program is targeted at financial advisers and screens the firms considered for inclusion for low pricing and directness of access. Fee transparency and quality of service are also major considerations in the evaluation.

"Through this program, iShares has identified a portfolio of administrative options for advisors to select the offering that best fits their clients' needs," said Darek Wojnar, the head of product research and strategy for the iShares, in a statement. 

Options Aplenty 

"Advisors can choose the fully bundled options from Preferred Providers or customize their offering through the wide range of administrators available on the Preferred Networks," he added.

Smaller plans below $50 million are typically the plans sold by financial advisers, added Wojnar in an interview. He noted that the small- and micro-plan market was estimated at $800 billion by Cerulli Associates in 2006, with the expectation that it would grow by 7-11% annually through 2011.

Eighty to 90 percent of these plans are sold by financial advisers, says Wojnar, adding that BGI believes that roughly 40% of the financial advisers selling iShares have at least some 401(k)-related business.

Wojnar cited a recent study from the Investment Company Institute that found that plans under $1 million charged average combined fees (record-keeping, administrative and investment fees) of 2.37% and that reports have surfaced finding many plans charge aggregate fees of more than 3%.

He says that BGI's platform participants can provide substantial savings to investors.

"We've identified those firms that are transparent with publishing their fees for administration and record-keeping, and we believe that those fees are very competitive, even at a small-plan level. Therefore it would be possible for advisors to select funds that have all-in fees that are under 1.5%, significantly below the average for that small size level," Wojnar said.

"At a very high level, when you look at the largest plans—those that are $500 million or maybe $100 million-plus—that there are clearly more-competitive options, but that is not the case for most participants at the smaller levels," he added.

The initial launch of the program covers administrators that offer ETF 401(k) solutions to financial advisers. Those include PAi of DePere, Wis., and Ascensus of Dresher, Pa. The firms service a combined total of 39,000 401(k) and defined contribution plans, and Ascensus bills itself as the country's largest independent record-keeper.

Meanwhile, one custodian and technology provider is currently in this category. That is Pittsburgh-based Mid Atlantic Financial Platforms, which offers custody and trust services to 11,000 401(k) plans.

"We are helping advisors identify providers and networks of providers that have made the changes and have competitive offerings. We are helping them find out which of these record-keeping firms and administrators offer services that would be compatible with the needs of their clients, and advisors can make those choices themselves. We're not steering them to any single plan," Wojnar said, emphasizing that advisers would have to do their own due diligence.