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Rating:Is Schwab the New Vanguard? Not Rated 1.0 Email Routing List Email & Route  Print Print
Friday, April 20, 2012

Is Schwab the New Vanguard?

News summary by MFWire's editors

Writing for Dow Jones' MarketWatch, Mitch Tuchman writes that Charles Schwab [profile] could be the new Vanguard [profile] when it comes to ETFs.

Tuchman notes that Schwab prices its ETFs one basis point lower than Vanguard's so it can shout "we are less expensive."

But why is Schwab willing to "clearly lose money" on the ETFs? Tuchman surmises that the Schwab strategy is to use the ETFs as a component of a tools strategy that allows investors to build "precisely allocated, sophisticated retirement portfolios more akin to how endowments and pensions invest."

So, sell the tools and give away the raw materials is the strategy Tuchman sees in Schwab's ETF-based 401(k) product called Index Advantage.
Schwab's plan is to become a dominant player the 401(k) market, leveraging its ETFs and its broad platform. Because new Department of Labor laws require fee disclosure, corporations are going to wake up and realize that they are allowing their employees to be ripped off on a grand scale by many traditional 401(k) plans.

Tuchman writes that this 401(k) product is "going to be highly disruptive." 

Edited by: HFD


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