Schwab waives fees on Treasury fund

Jan 26, 2009 @ 3:26 pm

By Jed Horowitz

Charles Schwab & Co. Inc. has started to waive fees on its $30.5 billion U.S. Treasury Money Fund which is used as a sweep account by many clients for their free credit balances — but don't ask Chuck: You have to do some detective work to discover the move.

As recently as last Thursday, a Schwab spokeswoman said that the company hadn’t waived fees on the fund, despite similar moves at rivals TD Ameritrade Holding Corp. of Omaha, Neb., and Pittsburgh-based Federated Investors Inc.

On Friday, however, the San Francisco-based discount brokerage giant revealed in a “frequently asked questions” section of its website that its U.S. Treasury Money Fund has “already voluntarily waived fees and/or reimbursed expenses in an effort to maintain certain net yields for the funds.”

Companies that sponsor and/or sell money-market funds that invest in U.S. government securities have been under pressure to waive fees because interest rates have plunged so low that investors are in danger of losing the principal value of their funds, which are marketed as the equivalent of cash.

The issue is sensitive as fee waivers hit the bottom lines of fund sponsors, and if they do waive fees they rarely advertise the fact.

According to analysts at Sandler O’Neill & Partners of New York, who discovered the Schwab fee waiver over the weekend, every 0.1% of fees waived on a Schwab fund reduces its earnings per share by 1.5 cents.

“This all happened quickly on Friday, probably late in the day,” said David Weiskopf, a Schwab spokesman. “As soon as we made the decision, it was duly noted and posted, and the questions area was a natural place to put it.”

The percentage of fees waived varies and is voluntary.

“Our objective here is to keep our shareholders and the fund in a flat to net positive position,” Mr. Weiskopf said

Schwab this month put out a press release saying that it will close the Treasury fund to new investors and change the fund charter so that it could invest up to 20% of its assets in certain non-Treasury investments. The fund recently bought mortgage-backed securities from Fannie Mae of Washington and Freddie Mac of McLean, Va., as well as some Federal Home Loan Bank Board-issued securities, Mr. Weiskopf said.

Peter Crane, who tracks money market fund developments at Crane Data LLC, in Westboro, Mass., said in an interview last week that money management companies and fund distributors are reluctant to advertise fee waivers.

“The only way to know usually is when they disclose it in earnings,” he said. “It is clear that a number of [funds] are prepared to do it, but it is unclear how many have actually done it.”

For the full report, see the upcoming Feb. 2 issue of InvestmentNews.

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