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Schwab Retirement Plan Services Becomes First Major Firm to Launch Full-Service 401(k) Program Based on Exchange-Traded Funds

February 5, 2014

Unique Offering Delivers Low Investment Costs, Broad Investment Choice and Personalized Advice to Help Workers Save More for Retirement SAN FRANCISCO --(BUSINESS WIRE)-- Schwab Retirement Plan Services, Inc. , a national 401(k) service provider to approximately 1.3 million workers saving through company retirement plans, has become the first major firm to launch a full-service 401(k) program based on low-cost exchange-traded funds. Steve Anderson , Executive Vice President of Schwab Retirement Plan Services (Photo: Business Wire) “We believe workers can and should get more value from their 401(k)s,” said Steve Anderson , head of Schwab Retirement Plan Services, Inc. “In 2012, we successfully launched Schwab Index Advantage®, designed to help workers better prepare for retirement using low-cost index mutual funds and personalized 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 percent compared to a typical 401(k) plan that primarily uses actively managed mutual funds, and by more than 30 percent compared to a 401(k) plan that uses index mutual funds. 1 Several employers have already expressed strong interest in becoming first adopters of the exchange-traded fund version of Schwab Index Advantage. Given the typical 6-12 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. Key Benefits 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) program 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 said. Many solutions on the market today unitize 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,” he added. For a growing number of individuals and institutional investors, exchange-traded funds are being embraced as a mainstay of a diversified portfolio. Assets in exchange-traded funds have grown from $66 billion in 2000 to more than $1.6 trillion at the end of 2013 according to the Investment Company Institute . “The extraordinary growth of exchange-traded fund assets is undeniable and reflects their ability to meet investor needs. The notion by some industry commentators that these benefits should not be available to 401(k) participants reminds me of the proponents of gas lighting who, 100 years ago, argued that electricity was dangerous and unnecessary,” observed Anderson. “Despite the obvious benefits of exchange-traded funds, mutual fund companies that dominate the 401(k) industry have largely ignored them – simply because these companies lack either the capabilities or the will to effectively accommodate exchange-traded funds in the retirement plans they offer. Others in the industry suggest that offering exchange-traded funds to 401(k) participants will lead to over-active trading, an argument not supported by the facts. 2 We heard the same false argument 25 years ago when the industry began updating participant 401(k) balances on a daily basis, instead of quarterly,” Anderson noted. “We believe in challenging the status quo and investing our resources to help drive positive change and contribute to better outcomes for hard-working Americans.” Eleven Fund Firms Offer Diversified Investment Options Schwab Retirement Plans Services, Inc. , has built a broad investment platform to help bring the benefits of exchange-traded funds to workplace retirement plans. Employers and their retirement plan consultants can build a diversified investment fund lineup, choosing from roughly 80 low-cost index exchange-traded funds that Schwab Retirement Plans Services, Inc. , 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®. Built-In, Personalized Investment Management As with the index mutual fund version of Schwab Index Advantage, the exchange-traded fund version builds in a low-cost personalized savings and investment strategy through independent third-party advisory services provided by either GuidedChoice Asset Management, Inc. , or Morningstar Associates, LLC . 3 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 exchange-traded funds provided under the plan, or by opening a self-directed brokerage account if their employer offers this feature in the plan. “Helping workers who don’t have the time, interest or expertise to effectively manage their own 401(k) investments is a crucial part of Schwab Index Advantage,” said Anderson. “We’ve built this so participants can take advantage of the managed service regardless of the size of their account balance or their level of investment sophistication.” A recent Schwab Retirement Plans Services, Inc. , survey found that 61 percent of respondents said they want investment advice for their 401(k) assets and were nearly twice as confident making investment decisions when helped by a financial professional. 4 Most importantly, Schwab Retirement Plans Services, Inc. , data shows that workers who have chosen to use independent, professional 401(k) advice in the past have tended to save more, were better diversified and stuck to their long-term plan, even in the most volatile market environments. 5 Focused on Better Outcomes The index mutual fund version of Schwab Index Advantage was launched in 2012 and includes an automatic enrollment feature for the managed account advisory service. Today, 85 percent of workers in the index mutual fund version remain enrolled in this managed service. Prior to the transition to Schwab Index Advantage, only about four percent of these same workers elected to receive advice. “We can deliver this personalized, professionally managed service for $45 or less per $10,000 invested. That means, with fund investment costs and professional management fees combined, workers will pay on average less than $60 per $10,000 invested with Schwab Index Advantage. They would pay $95 to $140 per $10,000 invested to have similar professional management in a typical 401(k) plan that primarily uses actively managed mutual funds. In fact, our approach delivers personalized advice at a total cost lower than many plans without any advice included. 6 It is a compelling value that can have a real, long-term impact on retirement savings,” Anderson said. Employers interested in learning more about Schwab Index Advantage should visit rethinkyour401k.com or call Schwab at 877-223-7036. About Charles Schwab At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity. More information is available at www.aboutschwab.com . Follow us on Twitter , Facebook , YouTube , LinkedIn and our Schwab Talk blog . The Charles Schwab Corporation (NYSE: SCHW) provides services to retirement and other benefit plans and participants through its separate but affiliated companies and subsidiaries: Charles Schwab Bank ; Charles Schwab & Co., Inc. (member SIPC , www.sipc.org ); Schwab Retirement Plan Services, Inc. ; and Schwab Retirement Plan Services Company . Trust, custody and deposit products and services are available through Charles Schwab Bank . Schwab Retirement Plan Services, Inc. , and Schwab Retirement Plan Services Company provide recordkeeping and related services with respect to retirement plans. 1 Based on Schwab Retirement Plan Services, Inc. , research using (1) 2010 data from 195 defined contribution plans serviced by Schwab Retirement Plan Services, Inc. , and Schwab Retirement Plan Services Company , and (2) 2010 data from a comparison set of plans serviced by other providers. In this comparison set, the weighted average operating expense ratio (OER) for midsize plans ( $20 million–$100 million) using primarily actively managed funds was $55 to $95 per $10,000 invested, and for large plans ( $100 million–$350 million) the OER was $50 to $75 per $10,000 invested. Index mutual fund estimate is based on an average weighted OER of $15 per $10,000 invested in plans that have implemented the index mutual fund version of Schwab Index Advantage and the estimated average weighted OER of $10 per $10,000 invested for the exchange-traded fund version of Schwab Index Advantage. 2 Data on users of the self-directed brokerage account available through Schwab Retirement Plan Services, Inc. Schwab Personal Choice Retirement Account® (PCRA), shows that participants tend to buy and hold investments in both Schwab Index Advantage and other 401(k) plans with a PCRA brokerage window. Today, users of a PCRA in their 401(k) have access to exchange-traded funds as well as stocks, bonds and other investments. PCRA users average one exchange-traded fund trade per month. 3 Schwab Index Advantage provides a combination of index funds with low operating expenses, built in independent professional advice available through Schwab Retirement Planner®, and Schwab Bank Savings, an interest-bearing, FDIC insured savings feature through Charles Schwab Bank . Schwab Retirement Planner® provides participants with a fee-based retirement savings and investment strategy, a major component of which is a discretionary investment management service furnished by independent registered investment advisors GuidedChoice Asset Management, Inc. ("GuidedChoice®"), or Morningstar Associates, LLC , a wholly owned subsidiary of Morningstar, Inc. GuidedChoice and Morningstar Associates are not affiliated with or an agent of Schwab Retirement Plan Services, Inc. ("SRPS"), or its affiliates. Schwab Index Advantage, including the Schwab Bank Savings and Schwab Retirement Planner features, is only available in select retirement plans serviced by Schwab Retirement Plan Services, Inc. 4 2013 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. The survey is based on 1004 interviews and has a three percent margin of error at the 95% confidence level. Survey respondents worked for companies with at least 25 employees, were current contributors to their 401(k) plans and were 25-75 years old. Survey respondents were not asked to indicate whether they had accounts with Charles Schwab . All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between June 5 and June 11, 2013 . 5 Charles Schwab in conjunction with Koski Research , The New Rules of Engagement for 401(k) Plans, 2010. Retirement plan investment advice is formulated and provided by GuidedChoice Asset Management, Inc. (GuidedChoice®), which is not affiliated with or an agent of Charles Schwab & Co., Inc. (CS&Co.), Schwab Retirement Plan Services, Inc. (SRPS), or any of its affiliates. 6 Based on Schwab Retirement Plan Services, Inc. , research using (1) 2010 data from 195 defined contribution plans serviced by Schwab Retirement Plan Services, Inc. , and Schwab Retirement Plan Services Company , and (2) 2010 data from a comparison set of plans serviced by other providers. In this comparison set, the weighted average operating expense ratio (OER) for midsize plans ( $20 million–$100 million) using primarily actively managed funds was $55 to $95 per $10,000 invested, and for large plans ( $100 million–$350 million) the OER was $50 to $75 per $10,000 invested. The $95.00 to $140.00 per $10,000 invested figure is the sum of the $50 to $95 average operating expense ratio paid in a typical 401(k) plan plus $45.00 per $10,000 invested for a managed service fee such as the one provided in Schwab Index Advantage. The United States Commodity Funds® is a registered trademark. All rights reserved. Vanguard is not affiliated with and does not sponsor, endorse, or promote the products of Schwab Retirement Plan Services, Inc. ©2014 Schwab Retirement Plan Services, Inc. All rights reserved. (0214-0897) Photos/Multimedia Gallery Available: http://www.businesswire.com/multimedia/home/20140205005293/en/ Charles Schwab Mike Peterson , 330-908-4334 mike.peterson@schwab.com or Intermarket Communications Neil Shapiro , 212-754-5423 nshapiro@intermarket.com Source: Charles Schwab


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