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June 01, 2011 at 09:42 AM
Jim McCool, Charles Schwab's executive vice president of institutional business, made waves at an asset-management conference in March when he announced that the brokerage firm soon would offer 401(k) retirement plans stuffed solely with exchange-traded funds. The Wall Street Journal reports he added that the San Francisco-based investment giant would let investors trade them without charge.
"You could tell the rest of the room was nervous about it," Mike Alfred, co-founder and chief executive of BrightScope Inc., told the paper. "The idea is disruptive."
The Journalnotes Schwab is a bit player in 401(k)s, but sees ETFs as a way to edge closer to giants such as Fidelity Investments, Aon Corp.'s Aon Hewitt and Vanguard Group. According to consulting firm Cerulli Associates, those three had a combined market share of about 43% in 2009, the latest year for which data are available.
Schwab doesn't disclose publicly how much of its $4.2 billion in annual revenue comes from the 401(k) business. Cerulli ranks the Schwab 10th by assets, at $72.5 billion.
Adding ETFs to 401(k) plans could put more pressure on actively managed fees, a trend that began with the introduction of index funds in the 1970s, the paper says.
