and his team just issued a huge challenge to Vanguard
and other index fund managers. On Tuesday Charles Schwab unveiled
a new mutual fund pricing scheme, eliminating share classes for all its equity and bond funds, pushing fees down to the lowest share classes' prices, and also dropping its equity index funds down to only nine basis points. At the same time, minimum investments will drop to $100 in all of its funds.
One senior fund executive told MFWire
that Schwab's new pricing "could up-end Vanguard's business model if they matched it ..." That exec added that Vanguard, unlike other fund firms, doesn't have the giant active management arm to subsidize its passive side.
, president and CEO of 401(k) recordkeeper NextStep Defined Contribution
and former CEO of The 401(k) Company
(which Schwab bought in 2007), praised Schwab for the move.
"It's absolutely in the right direction. I know that many 401(k) Company clients will take advantage of it," Bramlett told MFWire
. "This type of structure has been a long-time coming."
How did the team at Schwab describe the move?
"By reducing our fund expenses and simplifying the fees, more investors of all sizes and types can plan for a brighter future," stated Schwab CEO Walt Bettinger
"Our belief is that lower expenses and investment minimums, and simpler choices, will encourage clients to invest for the long-term," added Randy Merk
, president and CEO of Charles Schwab Investment Management.
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