WASHINGTON—Charles Schwab knew when it came out with its mutual fund wrap program in July that it would have to do more than simply launch the product if it was to pull in assets, since many competitors had been offering such products for years, according to MME sister publication, American Banker.
“We wanted to find a novel approach,” said Gregory B. Maged, vice president of advised solutions for Schwab Investor Services.
Featuring lower fees and a money-back guarantee, the eight-product Schwab Managed Portfolios program has attracted $1 billion in less than five months, Walt Bettinger, president of Schwab Investor Services, said at the company’s investor day this month. Maged said the early returns have far outpaced expectations.
The majority of the assets have come from Schwab customers moving assets from equities and mutual funds, Maged said.
Schwab's Managed Portfolios are priced at 50 basis points for investors with less than $250,000 in an account, 35 basis points for those with $250,000 to $500,000, and 25 basis points for those with more than $500,000 in an account. The average mutual fund wrap portfolio is priced at 150 to 200 basis points, according to Tiburon Strategic Advisors, a San Francisco consulting firm that surveys investment product costs annually.
Maged said Schwab wanted to target investors with investable assets of as little as $50,000. Charles R. Schwab, the San Francisco company's chairman and chief executive, said during its investor relations business update this month that it wanted to find ways to “seed its nursery” and attract younger investors.
“Some of these investors have enough assets to reach our minimum investment level, but the fees are harder to swallow for people with smaller accounts,” Maged said.
If an investor is not satisfied with Schwab's mutual fund wrap account at any time, the company will refund the program's fees for the previous quarter.
No one has invoked the guarantee yet, he said.
Analysts said that, despite these advantages, Schwab is five or six years behind most of its competitors. Maged said that it has been developing its advice strategy since 2002 and that it realized a year and a half ago that it could bring its advice capabilities down market with this account.
Schwab's Managed Portfolios contain mostly Schwab mutual funds but also some nonproprietary international and fixed-income funds, Maged said. The company is working on a set of eight mutual fund wrap products that would contain only nonproprietary funds; it hopes to launch these open-architecture wrap products next year.
Maged said Schwab can maintain its momentum. "We have a large population of customers to tap here that are interested in getting help with their investing," he said.