Race To The Bottom?
Many sources inside the fund industry are wondering whether the price war that is taking place in the ETF industry is really good for money management firms, especially those that are public.
Pressed on this question by IndexUniverse, Bettinger reaffirmed his company’s driving interest to do what's best for its clients.
“I’ll reinforce what I’ve already said: It’s like asking Apple if they can make money on glass on an iPhone,” Bettinger said. “I’m not worried about the manufacturer of the glass that goes on the iPhone. If I’m running Apple, I’m worried about building a client base that loves Apple products.
“At Schwab, we’re not worried about the individual who manufactures ETFs for the firm; we’re worried about delighting investors and building our franchise,” the CEO said. “We’re about serving clients, and different products that have different levels of profitability.”
That latter point may be crucial, according to IndexUniverse ETF Analyst Paul Baiocchi, who said Schwab may be interested in attracting new clients with its too-good-to-pass-up ETFs, but will charge more for some of the firm’s other services once those new clients come forth.
“The lower expense ratios are designed to get retail investors to move their assets to Schwab; buy these vanilla strategies and then use the Schwab platform to allocate to all the strategies that the Schwab ETF lineup does not cover,” Baiocchi said.
“In a similar way, they’re trying to attract advisors who are looking to decrease overhead in the management of their portfolios. Many of these advisors use the vanilla funds as part of their overall strategy, and the advisors who are more tactical in other portions of their portfolios can then pay commissions and fees that Schwab charges them to invest in those other products,” Baiocchi added.