Charles Schwab is a key distributor for many mutual fund firms. That makes its just-launched 401(k) product an interesting puzzle. Rather than promote the funds on its OneSource supermarket, the new retirement plan steers plan sponsors into just index funds.

That move seemingly puts the San Francisco-based brokerage firm at odds with its key partners.

Schwab Index Advantage is getting play across the mediasphere. Including stories in the Washington Post (Associated Press), Reuters, Bloomberg, MarketWatch, and InvestmentNews.

None of the coverage discuss the wedge that an index-only product would place between Schwab and the mutual fund firms on its distribution platform.

According to Schwab, this new 401(k) plan will reduce the costs of saving for retirement because active management will be taken out of the equation. Employers can choose from 17 asset categories to build their plans.

Schwab's Institutional Services head Jim McCool told Reuters that the DoL's upcoming fee disclosure regs will raise awareness of the issue.

"We saw how people got upset about even the fees on their bank credit cards and debit cards ... wait until they see their 401(k) statement disclosures," he told Reuters.

The Index Advantage 401(k) plan comes with financial advice will cost 65 to 75 basis points. If the advice will be taken out of the equation, the cost will be about 20 basis points.

McCool also said that participants typically pay 1 percent in fees and another half percent for financial advice or up to $1,500 worth of fees for a person with a $100,000 401(k).

What Schwab is doing, according to McCool, is "helping both employers and participants ... understand the real impact of expense." The brokerage firm manages $1.67 trillion assets.

The San Francisco-based brokerage also plans to introduce another version of the Index Advantage probably in 2013, which will use only index-based ETFs, said McCool. 

Edited by: HFD


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