Participants in some 401(k) plans have been able to invest directly in stocks and bonds through discount brokerage windows for some years. Soon, they may be able to create their own mutual fund -like portfolios, thanks to former SEC Commissioner Steven M.H. Wallman's online brokerage firm, Foliofn.
Working with investment consultants, outside plan administrators and retirement plan vendors, officials at the Vienna, Va.-based firm are hoping to make their services available to defined contribution plans by the summer.
The company isn't registered with the Securities and Exchange Commision. Its executives contend their products mimic, but are distinct from, mutual funds.. Nor does the firm have to get any sanctions from the Labor Department's pension office to sell its services to retirement plans, Mr. Wallman said.
He contends that investors are better off mixing and matching securities to create their own portfolios that they can rejigger as often as they like by trading through a "super-discount brokerage" than by investing in ready-made mutual funds that charge high fees and often produce mediocre returns. Foliofn investors can create their own portfolios by picking from among the 3,500 securities in which the firm trades.
The average mutual fund investor pays $467 per year in fees on a typical $38,000 investment, Foliofn's materials state. In contrast, investors can create three folios of up to 50 stocks each from a selection of nearly 3,500 securities and pay $29.95 per month to Foliofn or $295 per year. Additional folios cost $9.95 per month, or $95 a year. Investors may buy and sell the securities in their portfolios as often as they like.
But a spokeswoman for the mutual fund industry said retirement plan participants investing in mutual fund look-alikes deserve the same protections as investors in traditional mutual funds, which are regulated by securities laws. "They ought to be regulated like mutual funds, whether they are offered through 401(k)s or not," she said.