February 5, 2014

Schwab Rolls Out All-ETF 401(k) Plan

The news comes one week after TD Ameritrade launches retirement plan platform for RIAs

(Photo: AP) (Photo: AP)

Charles Schwab (SCHW) said Wednesday that its Retirement Plan Services unit will now offer retirees — via the retirement plans that serve them — an ETF-only 401(k) plan.

The plan will include about 80 ETFs from 11 different providers, including Vanguard, State Street and iShares, along with Schwab's own proprietary ETFs.

The announcement comes one year after the company’s launch of Schwab ETF OneSource, which offers advisors and retail investors commission-free access to 105 ETFs from six big ETF providers. (At the time, Schwab said an ETF-focused platform for retirement plans was in the works.) It also comes two years after Schwab rolled out a retirement menu based on Schwab Index Advantage mutual funds.

“It’s very accurate to say, this is the same philosophical approach [as with the Schwab Index Advantage mutal funds] and the same mechanics but using ETFs,” said Steve Anderson, head of Schwab Retirement Plan Services, in an interview with ThinkAdvisor.

Retirement plans, which have a sales cycle that last at leaset several months, should be offering them to investors before year end, Anderson notes.

According to the company, investors using index exchange-traded funds can reduce their investment 401(k) expenses by more than 90% vs. using actively managed mutual funds and 30% compared with index mutual funds.

Schwab, along with rivals such as Vanguard and Fidelity, have been fighting to attract as many retirement plan sponsors and retirees as possible to its platforms and products over the past few years.

Schwab says about 1.3 million workers save through its retirement products, services and plans, while Vanguard says it provides investments to roughly 4,000 defined contribution plans that cover some 3.5 million participants.

It says some advantages of its new ETF platform for investors include intra-day trading, along with the option of working with Morningstar or Guided Choice--or using a self-directed brokerage account.

TD Ameritrade Helps RIAs Expand Into Retirement Plan Business

Last week, the trust unit of TD Ameritrade (AMTD) rolled out a turnkey program to help its 4,500 affiliated RIAs more easily expand their work in the retirement plan business. The program brings together recordkeeping, custody and third-party administration, as well as thousands of non-proprietary ETFs and mutual funds.

TD Ameritrade says its RIAs have been offering 401(k) investors access to ETFs since March 2011, and its platform includes more than 1,000 ETFs; retirement investors can also buy stocks or pick from a long list of mutual funds. In addition, while Schwab’s plan will be marketed directly to plan sponsors as well as through advisors, TD Ameritrade notes that its retirement plan services are sold only through RIAs.

“We’ve had custodial platform for retirement plans advised by RIAs for 18 years,” said Skip Schweiss, president of TD Ameritrade Trust Co., in an interview.

“We found that this model is used by about 8% of our advisors, and the other 92% are not as involved in the business — which is what we see industrywide in terms of RIAs in the retirement space," Schweiss said.

When asked what’s holding them back, many of its 4,500 affiliated advisors say the business is too complicated. Plus, it takes too much work and time, and they’re too busy already, he says.

“Advisors also said, ‘We need the TD Ameritrade brand to be put on these offerings for when we go visit retirement plans that put us in competition with the other big brands,’” Schweiss explained. “That’s why we’ve made it easier with a new tool. The platform gives RIAs a more integrated approach that includes a third-party administrator.”

Today, RIAs can call TD Ameritrade to help them generate proposals to retirement-plan sponsors. They will be able to do this online by the end of June at the latest, he adds. This approach will soon be available to reps.

“We are pretty confident, based on the input we’re getting and the volume of calls we’re received, that we will head north of 8% over the next few weeks, months and years,” Schweiss said. “We’re determined to help our advisors be in a better position than they’ve been in the past to succeed in this market.”

Competitor LPL Financial (LPLA), which recently tapped Bill Chetney to serve as president of LPL Retirement Partners, says about 5,000 of its 13,500 affiliated FAs are working with the unit. Since Chetney came on board in 2010, the unit has recruited 400-plus advisors, grown its asset base to over $94 billion and begun servicing more than 32,000 retirement plans with about 3 million participants.

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