Schwab Retirement Plan Services, the 401(k) provider arm of Charles Schwab for 1.3 million participants and more than $100 billion in assets, is rolling out a new managed account capability for RIAs to plan sponsors.

The program is premised off of Schwab’s existing managed account option, which it developed in 2012 in partnership with Morningstar, and has since distributed through two RIA specialists to 401(k) plans.

Now, all plan specialists will have the ability to deliver the same type of managed accounts to sponsor clients with a minimum of $20 million in plan assets.

Steve Anderson, president of Schwab Retirement Plan Services, thinks the announcement is a game changer not just for plan advisors, but also potentially for millions of participants.

“Nobody else is doing what we are doing here,” said Anderson in an interview. “This really levels the playing field for advisors, especially the ones that best know their clients’ needs.”

As Anderson explained, the new platform gives plan advisors the ability to develop customized saving solutions that sponsors can then default participants into. Investments and allocations will be monitored quarterly and potentially rebalanced visa via Morningstar’s managed account technology.

In Schwab’s first managed account iteration, Morningstar served as the RIA fiduciary. Now, Morningstar will be stepping out of that role, and individual RIA specialist firms will be stepping in as 3(38) fiduciaries, said Anderson.

That has the potential to vastly open up a previously limited distribution channel for managed accounts, and help deliver the customized options that Anderson thinks will be the next evolution in the retirement market.

“Advice matters, particularly in the 401(k) space,” said Anderson.

Target date funds, by far the most utilized qualified default investment alternative, and which hold about $700 billion in participants’ savings, have served a valuable purpose in the market, and will continue to play an important role, said Anderson.

But managed accounts are the logical next phase in plan design, he believes.

“When we use target date funds, we leave a lot of information on the cutting room floor,” he said. “Why not use the technology that is available to look at all variables in a particular participants life and build those into a more personalized strategy. We think that will drive better savings outcomes.”

Plan specialists will be able to mine key vitals on savers from Schwab’s recordkeeping data, including age, salary, savings rates and account balances, in order to begin to refine a personalized strategy.

Participants will also be able to incorporate other data, like savings outside of a 401(k), data on spouses and social security projections, either through an interactive website or with assistance from Schwab’s call center.

From there, advisors will have the ability to design open-architecture portfolio solutions, potentially using low-cost ETF and Collective Investment Trust options to help participants contain fees on investments.

That’s a vital aspect of the program, said Anderson, as it will give plan advisors the advantage of delivering customized solutions at competitive costs.

“The open architecture component offers advisors tremendous flexibility, all within an integrated system that RIAs don’t have to spend money to build,” he said.

Advisors will set their own fees, be they based on assets or a fixed-dollar cost.

The cost of the managed account will fall within the industry range of 40 to 50 basis points, but will be somewhat fluid, Anderson said, based on the size of a plan and how the advisor designs the accounts.

But Anderson is clear in his and Schwab’s bottom-line: Combining a managed account with low-cost investments can often be less expensive for participants than plans that offer no advice at all, he said.

The first plans are expected to begin adopting the option early next year.

“This is a good answer for the market,” added Anderson. “The easy thing to do is to mimic the competition—we believe we’ve gone way beyond that.”

He wouldn’t comment on how many existing Schwab clients can be expected to be re-enrolled in managed accounts, or how many more new participants the company expects to gain in the foreseeable future. As is, 12 percent of the participants in Schwab’s 401(k) ecosystem are enrolled in managed accounts.

But he did say Schwab invests in areas where the company sees market movements.

“We definitely see this as an opportunity to grow,” said Anderson.

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Schwab's new managed account capability arms advisors

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