Exchange-traded funds have changed the way people invest. Now, some big players in the ETF industry are looking to have more people use ETFs to change the way they prepare for retirement.

Breaking into the 401(k) market
One of the biggest pots of gold for money managers is the 401(k) market. With about $2.7 trillion in assets, 401(k) plans represent an attractive target for managers looking to get sticky money under their wings.

That's why Blackrock (NYSE: BLK), which has the most assets under management of any ETF provider, is trying to break into the 401(k) plan market with its products. By claiming its piece of the retirement plan pie for its iShares line of ETFs, Blackrock hopes to find a quick path to growth.

Blackrock isn't the only company seeking to get more ETFs into retirement plans. ING's(NYSE: ING) ShareBuilder brokerage unit offers an all-ETF 401(k) plan that happens to include a number of popular iShares funds, including iShares Lehman Aggregate Bond, as well as offerings from Blackrock competitors State Street (NYSE: STT) and Invesco's (NYSE: IYZ) PowerShares.

Defending their turf
For now, Blackrock is targeting relatively small employers that have largely escaped the eye of bigger competitors. But once it establishes a foothold in the 401(k) market, Blackrock will probably start fighting directly against the biggest retirement plan asset managers, which include Fidelity, Charles Schwab (NYSE: SCHW), Vanguard, and T. Rowe Price (Nasdaq: TROW).

So far, those leading providers have resisted offering ETFs to retirement investors. Some argue that ETFs aren't as good for retirement plans as traditional mutual funds, because to buy an ETF, you've generally had to pay a commission. With many workers making relatively small contributions from each paycheck, paying even modest commissions each time would quickly wipe out any cost benefits ETFs have over some high-fee mutual funds.

Lately, though, those arguments are starting to go away. Fidelity, Schwab, and Vanguard have all made big pushes to develop brokerage accounts, and each offers fee-free ETFs to their brokerage customers. Sharebuilder's cost structure is set up so that participants pay no extra transaction fee for the contributions they make to their ETF-based 401(k)s.

Arguably, the real reason why big broker/retirement plan providers are balking at ETFs is that they don't want to threaten their huge base of traditional mutual fund customers. They don't need ETFs in retirement plans to woo potential investors; in fact, offering retirement plan ETFs would at best cannibalize their mutual fund assets and at worst divert them to outside ETF managers.

The verdict is still out
So is this a good thing for investors? The answer depends on what workers end up doing with the ETFs they invest in.

Certainly, 401(k) plans have taken a lot of heat in recent years, as big losses in the stock market along with high hidden fees among many plan investments have led to widespread dissatisfaction about retirement plan accounts. By that measure, Blackrock's initiative couldn't come at a better time, as ETF costs are typically lower than most actively managed mutual funds and are easy to break out.

The question, though, is whether workers will see ETF-based accounts as an invitation to trade their 401(k) accounts actively. Unlike mutual funds, ETFs would potentially allow workers to trade in and out of positions throughout the trading day. Such a move could distract workers from creating and sticking with longer-term investment strategies, further damaging their retirement savings.

With the right educational resources for workers, though, there's no reason that ETFs can't make good tools for saving toward retirement. Low costs could save many workers a substantial amount of money over the long run. Furthermore, low-cost plans from ShareBuilder or other prospective providers could encourage even the tiniest businesses to offer a 401(k) as a valuable benefit to their employees.

ETFs are coming
Like it or not, ETFs are where most of the innovation is happening on the financial front these days. With a treasure trove of possible assets to manage, 401(k)s are a logical target. If you learn to make the best of ETFs in a retirement plan, you may well be happy they came along when they did.

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