Schwab ETF platform for 401(k)s hits regulatory speed bump

The platform, which was expected to debut in the fourth quarter, may need more work

Oct 7, 2013 @ 3:38 pm

By Darla Mercado

The Charles Schwab Corp.'s long-awaited ETF platform for 401(k)s — widely forecasted to launch in the fourth quarter — has hit a regulatory speed bump.

The offering, which would make exchange-traded funds available to retirement plans, has run into a snag with regulators, according to Steve Anderson, executive vice president at Schwab Retirement Plan Services.

He would not share the precise details of the matter but noted that some of the work the firm is doing on the ETF platform is related to how the nature of the investments themselves. “To use ETFs appropriately in the intraday market, you want to be able to trade with fractional shares, and these don't have them,” Mr. Anderson said. “We have to find a way to accommodate that.”

Working out the details with regulators hasn't been so problematic that it will slow down development, however. “We don't want to pre-empt the regulators,” Mr. Anderson said. “Where we are now is where we anticipated being in the rollout.”

Retirement plan sponsors and the rest of the industry have been excitedly awaiting the release of the ETF-based platform since 2011, when Schwab announced its efforts to make 401(k) investing cheaper for plans and their participants. The company launched Index Advantage, an index-fund-based platform, in 2012 and has since lined up close to 80 clients who want to switch over to the cheaper structure, according to Mr. Anderson.

A recent report from IndexUniverse LLC quoted Dave Gray, vice president of client experience at Schwab, as saying that the platform will be delayed and that the issue is not related to fractional shares. “At this point, we're not committing to a particular time, whether it'll be at the end of this year or otherwise,” he told IndexUniverse. Mr. Gray also had noted that the firm had developed its own approach to fractionalizing ETFs.

Mr. Anderson would not comment on Mr. Gray's comments to IU but noted that the ETF platform is rolling along just fine. “I can see us being aggressively in the market in the next couple of months; it's near-term,” Mr. Anderson said. “We want to make sure that we have the regulatory bodies aligned with what we're doing here, and we think we can work through that relatively soon.”

Though offering cheap 401(k) investments via ETFs has long been the Holy Grail for the retirement industry, only a handful of companies have made a successful go at it. Adjusting record-keeping infrastructure — which is based largely on mutual funds — to handle ETFs and their intraday trading has been a major block in making these investments available to the mainstream retirement plan set.


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