Schwab Focuses on Personalization to Drive ETF Business

Schwab Focuses on Personalization to Drive ETF Business

The asset manager entered the ETF market in 2009 and is now the fifth-largest issuer.

Reviewed by: Heather Bell
Edited by: Heather Bell

Omar AguilarPersonalization is a buzzword among exchange-traded fund issuers, and a recurring theme at Schwab’s IMPACT conference last week. Giving investors more choice and helping them align investments with values, permitting them some say regarding tax implications may loom large in the industry’s next stage of growth. 

Omar Aguilar, Schwab Asset Management Inc.’s CEO, spoke with Managing Editor Heather Bell about recent additions to the firm’s product lineup and the future for the financial giant’s ETF business. Schwab entered the ETF market space in 2009 and is now the fifth largest ETF issuer. Where is Schwab currently looking to position itself in the ETF space? 

Omar Aguilar: Our mission continues to be the same one: We continue to champion the needs of the investors. We offer ETFs that solve their needs. The particular philosophy and vision that we have had is that we would like to provide access to as many people as we can, in areas that are critical for their portfolios.  

Low cost is a key component to what we do. Over the years, [we have continued] to be among the lowest-cost providers across all asset classes, and that will continue to be part of Schwab's vision. ETFs have been taking market share from mutual funds for a while now. Does Schwab have any view on that trajectory going forward? 

Aguilar: We think the ETF business will continue to grow—the size of traditional mutual funds and ETFs will continue to trade places. The mutual fund industry will continue to play a big role within the asset management, mostly because it is perfect for areas like 401(k) plans and retirement plans, and anything that is long-term investing usually serves well for somebody that doesn't need the tax efficiency or doesn't need the tradability of intraday trading.  

The mutual fund business will still play a big role within the industry, but it's not a surprise to anybody that the ETF business will continue to grow.  

We're in an interesting point right now, where a lot of traditional active managers have started to [convert] their mutual funds into ETFs.  

It's going to be interesting to see how that part of the ETF business evolves, mostly because, obviously, as an active manager, the transparency is not necessarily what you do. And then second, you have to make trade-offs between tax efficiency and alpha. For the most part, people that use ETFs like the transparency and the tax efficiency. Schwab has covered core asset classes for the most part, except for a few products like the Schwab Ariel ESG ETF (SAEF) and the Schwab Crypto Thematic ETF (STCE). How do you decide where you're going to launch ETFs beyond those core asset classes? 

Aguilar: As I said earlier, our mission and philosophy haven't changed. We will continue to lead in the area of core asset classes, making it accessible and affordable.  

That being said, the evolution of our business and asset management in general [points toward] personalization.  

Personalized investments are now taking a bigger role within the decision process. It used to be 10 years ago that the decision process for [selecting] an asset manager was for the most part track record and price. Now, it’s really about servicing and trying to understand [if it] follows your mission, follows your values and allows you to have a personalized journey.  

Separate from the ETF business, we launched our direct indexing solution. This is what we call “Schwab Personalized Indexing,” where we are allowing clients to have a personal journey into their strategy. We believe firmly that another way for people to explore personalization is by introducing thematic ETFs. How does Schwab see direct indexing and ETFs coexisting or interacting with each other? 

Aguilar: They will coexist nicely. They are trying to solve slightly different needs. The benefit of an ETF is well known—it obviously has efficiency when it comes down to capital gains through the ETF mechanism, it's obviously low cost and it's tradable intraday.  

In the case of ETFs, they will still continue to be a more affordable way to have long-term investments that are efficient from the capital gains perspective.  

If you buy an ETF today and you sell it 20 years down the road, there will be appreciation of your ETF such that you when you sell it, you will still have to pay taxes. You don't have that situation with direct indexing, but again, in a long-term situation, ETFs are a perfect vehicle for anybody to use. 


Contact Heather Bell at [email protected] 

Heather Bell is a former managing editor of She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.