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Schwab Retirement Plan Services launches 401(k) programme based on ETFs


Schwab Retirement Plan Services has become the first major firm to launch a full-service 401(k) programme based on low-cost exchange-traded funds.

“We believe workers can and should get more value from their 401(k)s,” says Steve Anderson, head of Schwab Retirement Plan Services. “In 2012, we successfully launched Schwab Index Advantage, designed to help workers better prepare for retirement using low-cost index mutual funds and personalised advice. We are now launching an additional version of Schwab Index Advantage with the goal of further driving down investment costs by using low-cost exchange-traded funds.”
Anderson estimates a 401(k) plan using index exchange-traded funds can reduce investment expenses by more than 90 per cent compared to a typical 401(k) plan that primarily uses actively managed mutual funds, and by more than 30 per cent compared to a 401(k) plan that uses index mutual funds.
Several employers have already expressed strong interest in becoming first adopters of the exchange-traded fund version of Schwab Index Advantage. Given the typical six to 12 month sales and implementation cycle in the 401(k) industry, the firm anticipates clients will be offering this new version of Schwab Index Advantage to their employees later this year.
Exchange-traded funds offer a number of benefits to investors that will now be available through Schwab Index Advantage, including low investment costs, a broad range of asset classes, transparency and timeliness of trades.
“Using a patent-pending process, Schwab Index Advantage is the first 401(k) programme that fully integrates exchange-traded funds as core investments within the plan, including commission-free intraday investing along with the ability to process partial share interests,” Anderson says.
Many solutions on the market today unitise shares, batch trades, trade only once a day at a single price, or require individuals to open a self-directed brokerage account to access exchange-traded funds.
“We believe a truly effective offering requires the ability to invest in and receive allocations of both full and partial shares of exchange-traded funds when the market is open, and that’s what we’ve built. Other 401(k) offerings that we’ve seen take a less comprehensive approach to including exchange-traded funds and also tend to serve smaller plans,” says Anderson.
Schwab Retirement Plans Services has built a broad investment platform to help bring the benefits of ETFs to workplace retirement plans. Employers and their retirement plan consultants can build a diversified investment fund line-up, choosing from roughly 80 low-cost index ETFs that Schwab Retirement Plans Services makes available under the platform. The funds represent more than 25 asset categories from major providers including Charles Schwab Investment Management, ETF Securities, First Trust, Guggenheim Investments, Invesco PowerShares, iShares ETFs, PIMCO, State Street Global Advisors, Van Eck Global, Vanguard and United States Commodity Funds.
As with the index mutual fund version of Schwab Index Advantage, the ETFnd version builds in a low-cost personalized savings and investment strategy through independent third-party advisory services provided by either GuidedChoice Asset Management or Morningstar Associates. Workers in the managed account advisory service receive ongoing investment management based on a variety of factors including their age, income, account balance and savings rate in their 401(k) plan. Workers who prefer to manage their account themselves can do so using either the ETFs provided under the plan, or by opening a self-directed brokerage account if their employer offers this feature in the plan.

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