Charles Schwab (SCHW) announced Monday it is sharply reducing the minimum investments on most mutual funds on its Mutual Fund OneSource platform, many to as little as $100 from $2,500, for initial investments in brokerage, IRA and custodial accounts. Schwab also cut the minimum for subsequent investments in already established accounts for all OneSource funds from $500 to $1.
Doug Hanson, a VP at Charles Schwab and head of the company’s third-party mutual fund platforms, said in an interview that lowering minimums just makes sense. “Observing trends in the mutual fund space,” whether in Schwab’s RIA business or in retirement accounts, “the concept of investment minimums were eroding.” Schwab’s own proprietary funds “have had a minimum investment of $100 for some time,” Hanson said.
Hanson pointed out that in the RIA space, mutual fund companies are highly amenable to lowering or waiving minimum initial or subsequent investments in advisor-class shares.
Hanson said “the burden for serving” clients using these lower minimums primarily “falls on us at Schwab,” and that the OneSource “platform economics makes it possible for us” to lower the minimums. So will there be any economic impact on the fund companies whose offerings live on the platform? “The only place where there might be an effect on funds,” Hanson said, would be that the fund companies might face higher costs for communicating with more investors in their funds, such as sending them prospectuses, though with the popularity of electronic document delivery such an effect might be minimal at worst.
At the Schwab Impact conference last week in Boston, Schwab CEO Walt Bettinger said that the Schwab Institutional Intelligent Portfolio (IIP) digital advice platform, which currently uses only ETFs, might be expanded. “We can take that engine,” Bettinger said in the opening general session, referring to IIP, “so you can trade mutual funds in that portfolio, even individual securities.”
Referring to Monday’s announcement, Hanson said there is “no connection with Schwab Intelligent Portfolios,” and said he is “pretty confident that if it comes to the point” where mutual funds are available on the IIP platform, “it would be as a managed offering,” which would mean the mutual fund companies would “waive the minimums” for advisor clients.