More choices and less costs for RIAs seeking

actively managed mutual funds

Schwab and T. Rowe Price team up to provide RIAs with access to
T. Rowe Price’s active mutual funds with no transaction fees

Article

December 15, 2021

By Heather Fischer, Head of Investment Offers & Solutions

At a time when independent RIAs are working closely with their clients to navigate what is a complex and shifting investing landscape, Schwab and T. Rowe Price have entered into a strategic relationship that will enable advisors who custody on the Schwab platform to purchase T. Rowe Price’s lowest cost institutional share class funds without transaction fees.

It’s big news, particularly for the RIA clients we serve, and the millions of investors they serve.

Beginning in early February, approximately 120 institutional no-transaction-fee (NTF) funds from T. Rowe Price will be made available, spanning ~65 Morningstar categories.

I’m proud of the value we’re creating with this strategic relationship, and colleagues across Schwab feel the same way. I spoke to Bernie Clark, Head of Advisor Services, about it and he said the aim of what we’re doing is three-fold:

  • to help respond to the demand we’re seeing from advisors for access to NTF funds;

  • to lower costs for advisors when constructing portfolios, enabling them to put more of their clients’ initial investment to work; and

  • to help advisors navigate a sea of product choices for their clients through a unique partnership with a qualified leader in active management.

Jalina Kerr, who heads up client experience for our Advisor Services business, agreed. She also made the point that it’s a great example of delivering something in true Schwab fashion. “It helps advisors deliver value to their clients, and most of all, it responds directly to something clients are telling us they want,” she said.

RIA appetite for NTF funds

We know how important it is to the advisors who custody with Schwab that they have access to a broad range of NTF funds. We recently conducted research with a small group of RIAs, and all advisors surveyed considered NTF funds “somewhat” or “very important”.1

When asked to rank different buying factors for mutual funds, having NTF choices came in third behind price and performance.

These findings tell a clear story. In 2022, we’ll continue to evaluate the potential benefits of expanding availability of institutional share classes with no transaction fees.

An Easy Choice

This all started with the idea that there were benefits of entering into a strategic relationship with a provider of actively managed mutual funds that would complement Schwab’s lineup of passively managed funds.

T. Rowe Price stands out from other active managers in just about every way to measure them:

  • their portfolio managers average 22 years of experience, including 17 years with T. Rowe Price;

  • approximately 70 of their 159 institutional share class funds earned a 4-or 5-star Overall Morningstar Rating as of 10/31/212;

  • over 90% of their institutional share classes have expense ratios at or below the average Morningstar Category expense ratio for institutional share classes.3

One of the most appealing elements of this strategic relationship is that we believe it can help advisors and their clients make decisions. For Schwab, when it came to our choice of who to partner with on this, T. Rowe Price was a clear and compelling one.

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Schwab receives marketing and promotional compensation from T. Rowe Price for our promotion of their mutual funds to clients of registered investment advisors that custody assets at Schwab, and for providing additional marketing support to T. Rowe Price.  Schwab receives various fees for the recordkeeping, shareholder services and other administrative services that Schwab provides to other no transaction fee funds, including certain institutional share classes that are available with no transaction fee to investors at Schwab. Fees are discussed more fully here.

1 During a research study conducted the week of December 6, nine advisors who custody at Schwab were asked the following: “When considering mutual funds for your clients’ portfolios, how important, it all, is it that they have no transaction fees?” Response options, included “very important,” “somewhat important,” and “not important at all.” All advisors surveyed, chose “very” or “somewhat” important.

2 Source: Morningstar Direct, 10/31/2021.

3 Source: Morningstar Direct, 11/16/2021.