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Leaked details suggest to some that Schwab still marginalizes the Advisor

As Schwab is closer to letting RIAs in as 401(k) middlemen, leaked details suggest that the firm still marginalizes the advisor (obvious).

The Charles Schwab Corp. has shown that its plan to cut out non-Schwab middlemen — namely RIAs and plan consultants — from its nascent index-only 401(k) plan was a nonstarter. The San Francisco-based firm, therefore, has created a system that gives 3rd parties an ability to vote.

“They’re trying to repair damage with the RIA community. Now, RIAs are restricted to Schwab’s menu of options. They don’t get to bring in any investments from the outside. They can charge clients for their advice but I don’t think it’s enough. Larger RIAs will say that they don’t want to be restricted to Schwab’s menu of options. A small RIA might like this but mid- and large-size RIAs don’t want this.”

Based on its target audience, Schwab may need to take a pragmatic approach, says Jessica Maldonado, advisor with Searcy Financial Services Inc. in Overland Park, Kan.

“There are so many underserved smaller plans in the marketplace and few advisors want to touch them because they’re a lot of work and hand-holding but without the big payout,” she says.

“By offering a lean, indexed investment approach in a streamlined, technology leveraged way, it could open up the market to advisors who are getting into the business and want to offer a lot of non-investment related value but still have oversight and some level of control on the investment allocations and models offered,” she says.

“I think Schwab’s only real interest in the 401(k) space is to capture rollovers and SageView takes a more holistic view and thinks for many participants they should leave money in the plan as opposed to always rolling it to an IRA,” says Randy Long, president ofSageView Advisory Group LLC in Irvine, Calif.

“We have a bit of differences in philosophy. I’m not sure how truly advisor-centric they are. There’s plenty of places you can go and get an index product that is competitive in addition to Schwab. I don’t think their program is truly unique.”

Gable says that helping investors achieve retirement is key at Schwab.

“Regarding our focus on the retirement area I think it is important to understand that saving and investing for retirement is the primary objective for most investors and is the heart and soul of our business. Our 401(k) business in particular is the way we can serve millions of Americans and help them achieve retirement security,” he writes in an email.

“We have a few plans with them. But I think they struggle with the role of working with intermediaries and RIAs. They’re trying to push the ETFs so hard and while they do have a place, how many plans will have an exclusive-ETF portfolio? Not many. I think the marketplace wants a fiduciary that’s conflict-free. Schwab has a continued conflict because they’re only in the business for rollovers.”

“For advisors who don’t want to deal with that fully unbundled approach’s inherent complexity, this is a way for them to manage those assets and deliver value to their plan sponsors without having to create something from scratch, she says. “It’s similar to what the insurance companies have been doing for years, only leaner in cost and with a friendly fee-based model rather than being laden with 12(b)-1 fees.”