Closing of Schwab ETF OneSource Reflects Market’s Fee Concerns

Launched in 2013, the platform originally allowed clients to buy and sell about 100 exchange-traded funds with no online trade commissions. Since then, investors’ expectations about fees and commissions have shifted dramatically.

Toward the end of last week, the Charles Schwab Corp. published its fourth quarter 2019 earnings and financial reports, listing quarterly earnings per share of 62 cents and a record full-year earnings per share total of $2.67.

The firm also reported record figures for full-year revenues and net income growth, as well as core net new assets totaling $221.7 billion for 2019, representing a 7% organic growth rate.

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One notable, but quite brief, item in the earnings report is an inconspicuous-seeming footnote that is actually part of a much bigger story in the investment services industry: “Beginning in the fourth quarter of 2019, Schwab ETF OneSource was discontinued as a result of the elimination of online trading commissions for U.S. and Canadian-listed exchange-traded funds.”

The move to quietly close the OneSource program comes several months after the discount brokerage firm announced it would no longer charge commission fees for all U.S. stocks, exchange-traded funds (ETFs) and options trades. At that time, the firm cut its trading commission costs from the previous $4.95 to zero. The firm’s leadership said it long had been a central goal of Charles Schwab to deliver zero commissions to investors and that the firm could make up any lost revenue through value-added advisory services and on the fixed-income side of the portfolio.

Asked for a comment about the closing, Charles Schwab shared the following summary of its strategy: “Because all ETFs are now commission-free at Schwab, the Schwab ETF OneSource program as it existed was effectively discontinued on 10/7/19. Schwab is no longer marketing or promoting the program to clients, and ETF sponsors no longer compensate Schwab to participate in the commission-free ETF program. There are other attributes to the program however, such as data and reporting, that offer value to participating firms, and the ETF platform team is currently evaluating the overall ETF platform strategy with respect to those components.”

Advisers may recall that it was only back in February 2013 that Charles Schwab launched the ETF OneShare platform. In its first iteration, clients could buy and sell 105 ETFs with no online trade commissions. The offering spanned all major asset classes, with funds from various providers including State Street SPDR ETFs, Guggenheim Investments, PowerShares, ETF Securities, United States Commodity Funds and Charles Schwab Investment Management. By March 2019, Schwab ETF OneSource’s lineup of zero-commission ETFs had been expanded to include more than 500 funds covering 79 Morningstar categories.

Speaking in 2018 with PLANADVISER about the evolution of investment fees and commissions, Jonathan de St. Paer, who is now president of the firm but was then the head of strategy and product development, said clients were reacting extremely positively to lower fees—as one would expect.

“The simplified fee structure meant that all investors—regardless of their size—would get access to the same low prices on these products,” de St. Paer said. “The story of falling fees is really important … [and] firms like ours have been focused on it for some time and we already have our solutions in place to address this new, much more fee-conscious market environment. You may remember, even before we eliminated them, our investment minimums were only $100, compared with the thousands you will see elsewhere. … This is not rocket science and the signs have been clear to us that this is the appropriate route to take.”

TIAA Is Latest Provider to Launch Institutional HSA Offering

The TIAA HSA will be administered by HealthEquity Inc. and will work in concert with TIAA retirement plans.

With rising health care costs and longer life expectancies, plan sponsors are increasingly looking to help employees save for their retirement medical expenses.

Given this trend, retirement plan providers are moving into the health savings account (HSA) market, and the latest to do so is TIAA. The firm says its forthcoming TIAA HSA will be administered by HealthEquity Inc. and will work “in concert” with TIAA retirement plans.

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According to the firm, the TIAA HSA will be available in the first quarter to all institutional clients that offer employees a high-deductible health plan (HDHP).

“Health care expenses are increasingly connected to an individual’s ability to retire and maintain a good standard of living throughout their lives,” observes Lori Dickerson Fouché, CEO of TIAA Financial Solutions. She says preparing for rising health care costs is a significant financial concern for both employers and individuals, citing TIAA research showing that more than 90% of plan sponsors say rising health care costs are a significant concern for retirement security. 

“As individual life spans increase, so does the potential cost of medical care in retirement,” Fouché adds. “By providing employees a one-stop-shop experience, we believe employees are more likely to take positive steps towards financial security.”

The TIAA HSA will include a diversified series of TIAA-CREF and Nuveen mutual fund investments in an integrated TIAA online and mobile view. In addition, the TIAA HSA will offer participants comprehensive tools and education resources, including a plan comparison tool, an HSA contribution calculator and a future balance calculator.

Ted Bloomberg, chief operating officer of HealthEquity, says his firm will be providing TIAA HSA members with “24/7 education and support.”

TIAA’s announcement comes just a few weeks after T. Rowe Price Retirement Plan Services Inc. announced it will offer integration of ConnectYourCare’s health savings account into its retirement plan offering. ConnectYourCare, a national provider of consumer directed health care solutions, serves as the product administrator and custodian.

That HSA solution will be offered within T. Rowe Price’s retirement savings plan recordkeeping platform, giving eligible participants the ability to view and manage their retirement and health savings accounts holistically.

Last year, HealthSavings Administrators and Orion Advisor Services LLC announced a strategic partnership to empower registered investment advisers to easily integrate HSAs into retirement planning services for their clients.

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